2023 Venture Capital Investment Trends: U.S. and Southeast Spotlight

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Research

Venture Capital Deal Counts, Dollars, and Sector Performance for 2023 in the U.S. and Southeast

A retrospective look at the state of venture in 2023 confirms that the Innovation Economy has come through another challenging, resilience-building year. Startups at almost every stage, sector, and region experienced funding disruptions, with fewer deals and extended time between follow-on investments. Investors remained generally cautious and slow to move. Global macroeconomic uncertainty did not subside, though the U.S. was somewhat less impacted than other major economies, and the innovation spirit was in many ways fueled by the vexing issues that stressed the economy.​

As the State of Startups in the Southeast report showed (October), 2023 was a year marked by responsibility and cautiousness across the investor and startup communities. As we ended the year, it appears that, while challenges persist, a careful recalibration is happening across venture capital. The end-of-year PitchBook, NVCA, and CB Insights reports include reasons to be cautiously optimistic about 2024 and the coming years.​

This post provides data highlights for the U.S., Southeast, and Atlanta from the 2023 year-end reports provided by PitchBook, NVCA, and CB Insights, as well as from unique data pulled by our team on the state of SaaS, Fintech, and Healthcare tech.

The 2023 Venture Capital Overview

Overall, 2023 was a relatively slow year for activity. ​​

The rough news
  • For full-year 2023, venture funding fell to $248.4B, the lowest since 2017. ​
  • Global deal volume declined 30% YoY to a 6-year low, and U.S. deal volume fell to a 10-year low. ​
  • Most sectors experienced losses, with a few exceptions (led by AI), which saw modest funding gains at the end of the year.​
  • Late-stage deal sizes continued to fall and are down 50%+ since 2021 to a median late-stage deal size of $21M.​
  • Less competition among investors put pressure on valuations, which caused a decline in the number of mega-rounds (deals worth $100M+) and new unicorn companies (valued at $1B+). ​
  • The new unicorns (71, according to CB Insights) minted in 2023 represented the lowest number since 2019. The creation count dropped 87% compared to the 344 new unicorns minted in 2021. 2024 is expected to be another year of decline, and we may see some prominent unicorn startups lose their status this year. ​
The cautious good news
  • According to the reports, VC investors are seeing signs of progress, especially in the generative AI sector, which defied the global VC funding slump in 2023. ​
  • In cautious good news for the U.S. Innovation Economy, most new unicorns (35%) are American-made. ​
  • Despite valuation pressure in 2022 and 2023, prices for startups at every stage except for venture growth remain generally higher than in 2020. ​

Source: PitchBook NVCA Venture Monitor, Q4 2023

The delta between deal counts and value widened in 2023. The counts were on par with 2019 and 2020, and deal value returned to 2020 levels. Looking at the graph holistically shows a clear 'return to normal' after two years of outsized deals.

Global, U.S., and Southeast VC Funding Trends

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Source: CB Insights, State of Venture 2023 Recap

As 2023 ended, North America (the U.S. in particular) was the most active global funding environment. In part, that is because the region's Innovation Economy was not directly impacted by the destructive geopolitical, economic, and combat issues that affected other areas of the world.

Deal counts were relatively high in the U.S. in 2023, but deal value continued its descent from historic levels, with $170.6B invested (a drop of $71.6B from 2022 and $177.4B from 2021).​

Source: Comparative data set pulled from PitchBook

Our team zoomed in on PitchBook data for FY2023 to show how many of the deals and dollars went to startups in the Southeast region. As percentages, approximately 12% of VC deals and 6% of capital invested in the U.S. went to businesses with headquarters in the Southeast. ​

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Source: CB Insights State of Venture 2023 Recap

Honing the data to look at Atlanta, the region ended 2023 on a relatively consistent and moderate note with regard to dollars and deal counts. Q1 saw the greatest number of deals, but the balance of deal count and dollars invested was most promising in Q3. In all, the region's Innovation Economy appears to be moderating back to pre-2020 levels.

VC Funding and Deal Counts by Startup Stage

Source: CB Insights State of Venture 2023 Recap

Looking at how VCs allocated capital to startups by maturity, 2023 capital trends looked a lot like 2022. Early-stage startups (pre-seed, seed, series A-B) garnered the lion's share of deals, with the percent of deals going to mid- and late-stage startups remaining consistent from 2022 and down from the years prior.​

Source: Comparative data set pulled from PitchBook

Zooming into the Southeast, the data shows that the region constitutes about 10% of early-stage and 12% of later-stage deals by count but approximately only 5% of capital for each stage, respectively. The data reiterates what we saw earlier in the year, which shows that the Southeast is a more cautious, measured VC funding environment than other notable innovation markets (in particular, Silicon Valley, New York, and Boston).​

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Source: Comparative data set pulled from PitchBook

In the Southeast and U.S., investors put more capital into early-stage deals than into later-stage rounds in 2023.​ In the U.S., early-stage startups captured 65% of VC deals. ​

  • Seed stage companies in the Southeast captured 3% fewer deals than the total U.S. allocations but 3% more dollars invested. ​
  • Similarly, early-stage companies in the Southeast captured 2% fewer deals than the total U.S. allocations but 2% more dollars invested. ​
  • Later-stage companies in the Southeast captured 28% of the deal count, which is on par with the total U.S. funding trends. However, the average amount of capital invested was 6% less than the U.S. as a whole.​

The percentage of combined early-stage deals was slightly higher in Atlanta (58%) than in the Southeast (55%). But generally, the region closely resembles the Southeast and the U.S.​

Many startups navigated the choppy waters by extending runway via reduced cash burn, raising bridge rounds or other opportunistic financings. An uptick in down rounds from roughly 8% in 2022 to 20% in 2023 suggests valuations are resetting for late-stage companies, albeit on light deal volumes. Meanwhile, seed through Series A investment activity levels and valuations have been relatively stable. Looking forward, we anticipate most venture-backed startups will need to raise capital in 2024. (Ginger Chambless, Managing Director and Head of Research, JPMorgan Chase Commercial Banking)
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Source: CB Insights State of Venture 2023

At the end of 2023, deal value for early-stage startups dipped to the lowest level since Q3 2017. At $39.5B deal value in 2023 was 43.5% lower than 2022, falling to 2017 numbers. On the other hand, deal count remained steady and healthy, staying fairly consistent with 2022 numbers. ​Analysts expect that more early-stage companies will seek to fundraise in 2024. Young startups have small teams, less mature products, and are likely already operating lean. They they have fewer ways to reduce their costs, so will be needing to seek funding to stay afloat.​

As many in the VC ecosystem expected, late-stage deal activity slowed through the end of 2023, with $16.4B in value across approximately 1,019 deals. This decline brought the annual total to $80.4B across 4,305 deals, a notable decrease compared with 2022 ($94B across 4,687 deals).​

2023 ended with fewer deals and less capital invested than 2022; that is obvious. However, the industry is extremely well capitalized, and advances in AI, life sciences, and clean tech are all attracting significant levels of public and private investment. Furthermore, a tremendous need exists for new capacity in fields like manufacturing and materials processing to de-risk existing supply chains and power the green transition. The world has changed, and it is up to America's VC community to make sure those changes leave the world better off.​ (Bobby Franklin President & CEO NVCA​)

The quote from NVCA's Bobby Franklin perfectly concludes this look at U.S., Southeast, and Atlanta region VC trends from 2023. As we concluded in October's State of Startups in the Southeast 2023 report, even in the face of real headwinds, reasons exist to be optimistic about the state of VC and the Innovation Economy – provided that the participants, as Franklin proposes, work together to do the work to "leave the world better off."​

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Methodology

Primary Sources

For the unique U.S. data and the sector investment data, the BIP Ventures team processed PitchBook data for all VC completed deals in 2023 for all stages excluding Angel. We processed data for all other stages in all HQ locations in the U.S. excluding: ​US Territories,​ Puerto Rico​, and The Virgin Islands​.

For the unique Southeast data and the sector investment data, the BIP Ventures team processed PitchBook data for all VC completed deals in 2023 for all stages excluding Angel. We processed data for all other stages in all HQ locations in the Southeast including Virginia and excluding: ​U.S. Puerto Rico​ and The Virgin Islands​.

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