2022 saw a historic decline in VC funding

Twelve months ago, the world of startup funding was coming off a red-hot 2021, hoping to maintain its record-shattering momentum into the new year. Fast-forward to now, at the start of 2023, and startup funding has slowed to a relative crawl.

In 2022, global venture funding totaled $445 billion, per Crunchbase. That’s a 35% year-over-year decline from the $681 billion startups raised in 2021, representing a steeper pullback than was experienced after the 2008 financial crisis or dot-com bubble, per Preqin data reported by Bloomberg.

If you squint a little…This decline can be read as a simple correction following an irrationally exuberant year. For a whole host of reasons—pent-up pandemic demand, low interest rates, a historic public tech bull market—2021 might have been a funding outlier. Plus, despite the unprecedented contraction, 2022 was still the second-best year for startup funding in the last decade. Investors spent $100 billion, or 29% more in 2022 than they did in 2020, per Crunchbase.

But at the same time, the economic environment has clearly changed in the last year—and so too have the rules of the VC game. Sequoia crystallized this shift last spring with its “Crucible Moment” memo, in which it warned its portfolio companies to cut unnecessary expenses and generally hunker down.

• And although a lot of money was invested last year, most of it was invested in the first half of the year: $285.5 billion was invested in 1H, 80% more than the ~$160 billion invested across 2H.
• Q4 2022 was the worst quarter for venture funding since Q1 2020…when, you know, the pandemic hit.

Looking ahead…With the economic outlook as murky as ever, it’s anyone’s guess as to whether funding will keep dropping, stabilize, or begin to rise again. We’ll check in on the market each month.