State of the Venture Capital Market
Data + AI continues to garner momentum with all major vendors highlighting the importance of it. Every AI app starts with data. Data is clearly the differentiator as it relates to Generative AI. In addition, the decline in venture capital deals and valuations seems to be stabilizing and there are signs of improvement in seed valuations and Series A deal velocity. Founders and investors are beginning to align on price discovery for financing rounds.
Public market comps have recovered. With a 6-9 month delay in how private company valuations follow public markets, we expect some improvement. However, the focus on metrics such as the Rule of 40 (growth rate + burn rate >= 40%) will be top of mind for investors.
The global venture funding industry declined 13% quarter over quarter, getting down to levels not seen since Q2 2020.
As the chart below shows, US based startups raised a total of $31.3B, which was the lowest since Q4 2019.
The angel and seed investment market also continued its declines - both in terms of deal value and deal count. Deal count slipped 25% from a year ago. For seed deals, specifically, the quarterly deal value of $2.8B in Q2 marked a 27.5% decline from the previous quarter.
As discussed previously, we expect the industry to begin plateauing from this point onwards. The only metric that saw an increase was that the seed round deal size increased to $2.9M - this is also likely because the industry has become much more selective and the best deals are now the only ones being funded.
In terms of early stage deals (Series A), deal value seems to be steady compared to both the previous quarters while the number of deals seems to be quite robust.
However, the median early-stage deal size dropped to $6.0M, a 25% decline compared to 2022.
All in all the industry, which has faced numerous challenges over the last year is now beginning to resemble the pre-pandemic behavior.
Recently, we welcomed Type to our portfolio. Type, an AI-first document editor, raised a $2.8M Seed round, with participation from Cervin, Y Combinator, Goodwater, Rogue Capital, Ascend,Omega Venture Partners, and a number of other Silicon Valley funds and angels.