Even though venture capital markets felt tough in 2023, startups may find it even harder to raise money in 2024. According to the latest Pitchbook data, startups raised just $76.6 billion globally in Q4 last year—the lowest year-end total since 2017.
What’s fueling this outlook? In Q4 2023, both the number and value of VC deals dropped to a three-year low, continuing the steady decline since the 2021 “venture boom,” when Q4 totals topped $2 trillion.
Looking at the full year, global VC funding dropped from $531 billion in 2022 to about $345 billion in 2023. Fundraising by VC firms fell even more sharply, with only $161 billion raised in 2023 compared to $307 billion the year before.
Globally, Q4 2023 marked the lowest annual fundraising total since VCs raised just $119.3 billion in 2015—a far cry from the $379.7 billion peak in 2021.
These funding gaps are striking on their own, but a closer look at 2023 by quarter paints an even more uncertain picture for 2024. Both deal count and deal value steadily declined throughout the year, with Q1 and Q2 propping up the annual total despite a clear downward trend in both funding and fundraising across all four quarters.
The bottom line?
Global venture capital firms entered 2024 with less cash on hand than at any point in nearly five years. That means there will simply be less VC funding available as startups look for capital this year.
Despite the sharp drop in global VC activity over the past few quarters, it’s not all bad news—especially for early-stage startups.
In the United States, for example, early-stage companies actually had a much steadier 2023 than their global counterparts. While Series A deal values dipped between 2022 and 2023, the median seed round value last year matched the $3 million record set in 2022.
In fact, the average U.S. seed deal value climbed to $1.3 million last year—a level not seen since 2006.
What’s more, while the median pre-money valuation for post-Series A rounds shrank from 2023 to 2022, the median pre-money valuation for seed deals rose from $11 million in 2022 to $12 million last year.
While these aren’t massive gains, the uptick in seed-stage funding shows investors are still willing to back new startups—they’re just being more selective about which new technologies to fund, especially after going big during the pandemic’s peak.
Reasons to be optimistic?
Even though VC and startup funding isn’t trending upward as 2024 begins, founders still have reasons to feel confident about their chances in today’s startup landscape.
As we recently discussed on the blog, financial leaders in the U.S. expect both business and revenue growth in 2024. That could boost GDP and improve lending conditions overall.
Along the same lines, there’s a chance interest rates could be cut in 2024 as the broader economy stabilizes after the 2021 “venture boom” triggered in part by the pandemic.
However, startup founders shouldn’t count on lower interest rates alone to unlock new sources of capital.
Focus on driving innovation to extend operational runway
As startups and founders chart their path for 2024, it’s crucial not only to diversify funding sources to guard against market uncertainty, but also to double down on unique innovation to stay competitive in a more selective investment environment.
For many founders, that means investing more than ever in research and development to create solutions that solve real problems, drive efficiency, and carve out a distinct market position.
In some cases, that may mean “killing the baby,” so to speak, and relaunching R&D initiatives (or even overhauling workflows) to ensure your team is delivering truly original innovation that stands out.
While this calls for greater investment in R&D—which can be daunting for cash-strapped, pre-revenue founders—there are strategies to make those R&D dollars go further, including ways to recover a portion of your spend through tax credits.
Across North America, Boast helps startups and founders streamline their R&D processes to unlock a range of non-dilutive funding options. This lets you double down on your product roadmap while actually extending your runway.
Book a call with our team today to see how Boast can strengthen your capital strategy, and download our ebook to explore the funding options available at every stage of your growth.
