A slower final quarter ended a lackluster year for global startup funding as venture capital investors continued to hold back in 2023, Crunchbase data showed Thursday.

Crunchbase said in a statement that in all, 2023 is on pace to be the lowest for venture funding since 2018.

According to the statement, global startup investment in 2023 reached $285 billion — marking a 38 percent decline year over year, down from the $462 billion invested in 2022.

Cutbacks were deep across all funding stages globally. Early-stage funding in 2023 was down more than 40 percent year over year, late stage by 37 percent, and seed just over 30 percent.

It’s worth keeping some perspective, though, overall funding in 2023 was down by less than 20 percent when compared to the pre-pandemic years of 2018 to 2020.

Meanwhile, two years into the slowdown, the venture markets are still reckoning with the funding boom of 2021, according to Crunchbase.

It said that the fall in tech stocks and a slowdown of the initial public offering (IPO) market since the beginning of 2022 has tempered the industry.

It also said valuations set in 2021 did not hold up in 2023, as promising companies raised flat and down rounds.

It also noted that startups last year navigated a tough funding environment, tightened their belts and focused on unit economics. Layoffs across tech is also deepened in 2023.

According to the statement, investors deployed capital more sparingly, with a higher bar at each stage.

The United States — the largest startup investment market with about half of all venture funding — mirrored global trends.

Funding to United States-based startups in 2023 totaled $138 billion, down by 37 percent year over year.

While most industries were down year over year, artificial intelligence (AI) was the largest sector to show an increase.

According to Crunchbase, global funding to AI startups reached close to $50 billion last year, up 9 percent from the $45.8 billion invested in 2022.

The largest fundings in 2023 went to foundation model companies OpenAI, Anthropic and Inflection AI, which collectively raised $18 billion in 2023.

Insurtech, semiconductors and battery tech also all saw increased investment in 2023.

Two industries, however, stood out as performing better than broader market declines. Manufacturing and cleantech startups were down in 2023 year over year, but by less than 20 percent.

Meanwhile, Web3, which experienced a runup in 2021 and into 2022, fell 73 percent year over year in 2023, from $28 billion to $7.6 billion.

Other leading sectors that were down year over year include financial services (down over 50 percent), e-commerce and shopping (down 60 percent), and media and entertainment (down 64 percent).

According to Crunchbase, the fourth quarter marks the lowest quarter for global venture funding in 2023.

Quarterly funding totaled $58 billion, down 24 percent quarter over quarter and 25 percent year over year.

It noted that seed funding totaled $7 billion in the fourth quarter, down just over 20 percent year over year from $9 billion.

Despite the cutbacks at seed, it is seen to be the most robust funding stage with new companies funded.

And as it became more challenging to raise a Series A round, it said companies were more likely to raise follow-on seed funding.

Meanwhile, early-stage funding declined the most in 2023 compared to other funding stages.

In the fourth quarter, early-stage funding totaled close to $23 billion, down a tad quarter over quarter, and down 32 percent year over year from $33 billion.

Late-stage funding in the fourth quarter, on the other hand, was 25 percent of the volume of the peak in the fourth quarter of 2021.

Fourth-quarter funding reached $28.6 billion, down close to 20 percent year over year.

Funding at this stage fluctuated throughout 2023 as large fundings went to AI, semiconductor, battery and clean energy companies.

With the increased number of companies funded in recent years, and the tightening funding markets, Crunchbase expects the layoffs of 2023 will give way to more companies closing in 2024.

It said the venture markets got more disciplined in 2023. It also opined that without a bump in exits, 2024 will continue to be tough for founders in a funders market.

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