Start-Up Funding Falls the Most It Has Since 2019

San Francisco — For the first time in three years, startup funding is declining.

The numbers are clear. Investment in U.S. technology start-ups has plummeted 23% to $ 62.3 billion in the last three months, the sharpest since 2019, according to figures released Thursday by PitchBook, which tracks young companies. rice field. To make matters worse, in the first six months of the year, startup sales and initial public offerings (the main way these companies return cash to investors) plummeted 88% from a year ago to $ 49 billion. became.

This is the ecosystem of start-ups that have grown significantly over a decade, supported by more and more technology users, from booming economies, low interest rates, smartphones to apps to artificial intelligence. Decrease is rare. That surge gave birth to the names of current homes such as Airbnb and Instacart. Over the last decade, quarterly funding for fast-growing start-ups has fallen just seven-fold.

But young tech companies have been hit as rising interest rates, inflation and uncertainty from the war in Ukraine have hit the global economy this year. And it foresaw a difficult time for the tech industry, which relies on start-ups since Silicon Valley to deliver the next big innovation and growth engine.

Kirsten Green, an investor at Forerunner Ventures, said, “We have entered a long bull market,” saying the pullback was not only a reaction to macroeconomic uncertainty, but also to its enthusiastic trading period. I added. “What we are doing now is to calm things down and get rid of some of the noise.”

Start-ups still have a lot of money behind them and the collapse is imminent. Investors have funded 4,457 transactions in the past three months, up 4% from a year ago, according to PitchBook. Venture capital firms such as Andreessen Horowitz and Sequoia Capital have also raised large amounts of new funding to expand into younger companies, with a $ 122 billion commitment so far this year, Pitchbook said. ..

Startups are also accustomed to the boy who cried the wolf. Over the last decade, various blip in the market has given rise to the prediction that technology will fall into a bubble and quickly collapse. Every time, the technology bounced even more powerfully and more money was poured.

Still, lately, warning signs that everything isn’t working have become more prominent.

Venture capitalist like Sequoia Capital When Lightspeed Venture PartnersWarns young businesses to cut costs, save cash and prepare for difficult times. In response, many start-ups have fired workers and started employment freezes. Some companies have been closed, including payment startup Fast, home design firm Modsy, and travel startup Wander Jaunt.

This pain has also extended to young businesses that have been exposed in the last two years. Shares of former startup darlings, such as stock app Robin Hood, scooter startup Bird Global, and cryptocurrency exchange Coinbase, are 86% to 95% below last year’s highs. Enjoy Technology, a retail startup unveiled in October, filed for bankruptcy last week. Electric Last Mile Solutions, an electric vehicle startup unveiled in June 2021, announced last month that it would liquidate its assets.

Kyle Stanford, an analyst at PitchBook, said the difference this year was the lack of extensive checks and soaring ratings in 2021. “They were unsustainable,” he said.

Index Ventures investor Mark Goldberg said the startup market is currently in a sort of stalemate, especially for the largest and most mature companies, and lacks new funding action. rice field. The founders of many start-ups haven’t recently wanted to raise money at prices that value their value lower than they once were, but investors don’t want to pay last year’s highs. He said. The result is stagnation.

“It’s pretty frozen,” Goldberg said.

In addition, he said there was little need to raise money this year as so many start-ups raised huge amounts of cash during the recent boom. Things can change next year as some companies start to run out of cash. “Logjam breaks at some point,” he said.

David Spreng, an investor at venture debt investment firm Runway Growth Capital, said there was a severance between investors and start-up executives over market conditions.

“Almost every VC is ringing the alarm,” he said. But he added, “The management team we’re talking about seems to be all thinking. We’re okay. Don’t worry.”

One thing he saw all the companies doing was to freeze their employment, he said. “It’s time to be a little worried when we start seeing companies fail to reach their bottom line,” he said.

Still, the huge amount of capital that venture capital has accumulated to support new start-ups gives many in the industry the confidence to avoid a major collapse.

“When the spigot is turned on again, the VC will be set back to return a lot of capital to work,” Stanford said. “Unless the broader economic situation deteriorates.”