How hard was it to raise venture capital in Q1?

Deal Flow

The venture capital market in Q1 2023 saw a notable decline in deal count and deal value compared to previous periods. Kyle Stanford from PitchBook highlighted that while deal count was down slightly from Q4 2022, the deal value dropped significantly, reaching the lowest levels since Q1 2018 1. Despite this, smaller funds continued to make deals, maintaining a high deal count but not driving up deal value 2. This trend indicates a shift towards smaller, earlier-stage investments as larger deals become less frequent.

Deal count was down a little bit from Q4, but we still came in at almost 3900 deals. Deal value was at 37 billion, which is really low compared to what we saw, but it's not too big of a decline from Q4.

--- Kyle Stanford

This shift is partly due to the withdrawal of large non-traditional investors, impacting the late-stage and venture growth stages significantly.

   

Valuation Trends

Startup valuations in Q1 2023 showed resilience, particularly at the seed stage. Kyle Stanford noted that seed deal valuations reached their highest median levels ever, driven by high-quality deals and increased activity from large multistage investors moving to early stages 3. This trend is surprising given the broader economic concerns, but it reflects the durability of optimism in the earliest stages of investment 4.

Seed deal valuations, pre-money, are this quarter at the median highest we've ever seen in the core data set.

--- Kyle Stanford

The data suggests that early-stage companies are more developed than in previous years, contributing to higher valuations.

   

Investor Sentiment

Investor sentiment has shifted significantly, with a notable decline in available capital and a more cautious approach to funding. Kyle Stanford explained that companies now face stricter funding conditions, often receiving much less than they need, leading to survival rather than growth-focused strategies 5. The multistage investment strategy remains relevant, but its popularity has waned as overall round counts decline 6.

It's either a major pivot, that's a lot more layoffs. That is basically capital to sustain rather than to grow. And that's not what VC is predicated on.

--- Kyle Stanford

This cautious sentiment reflects broader economic uncertainties and the need for more strategic capital allocation.