Dry powder is as high as $1.3 trillion globally for private equity and $580 billion globally for VC, according to one estimate from James Ephrati of Lightspeed Venture Partners. The dry powder in 2021 was roughly the same, he said, but investors were putting money to work at a record pace.

• See Also: The Largest US Venture Funding Deals Of 2023

Investors are likely to hold back in 2023, at least in the shorter term, as funding valuations trend down. Founders are becoming more disciplined around spending, which will impact growth. And limited partners who overextended in venture capital assets would prefer firms to come back to raise subsequent funds with wider time horizons.

All of these new conditions will make for a much more cautious funding environment next year. 

While fundraising by venture investors increased in 2022, funding to startups slowed significantly. In the third quarter of 2022, global venture funding dropped by more than 50% year over year, per a Crunchbase News analysis. Late-stage funding has plummeted even more dramatically by 63% year over year. 

The LP perspective 

Limited partners who invest in venture funds are expected to slow down commitments in coming years.  

“While I have not heard of many LPs looking to get out of the venture asset class, I do generally expect to see increased LP churn in 2023 and potentially into 2024,” Elizabeth Clarkson, a partner at Sapphire Ventures, which runs its allocation to venture funds in the U.S. and globally, said in written responses.  

“If history is any guide looking back from the 2000 dot-com bubble bursting and the Great Recession of 2009, I think we will see a reduction in 2023 in the total number of venture funds raised, and possibly into 2024,” she said. 

Fund managers should expect a tougher fundraising climate, Clarkson said. “I don’t believe this means emerging venture managers won’t get funded, but I do think the bar has been raised for all venture managers on what constitutes true underlying performance versus high paper valuations.”

2021 multiples

Many of the high valuations set in 2021’s frothy market, particularly for late-stage startups, are starting to look unsustainable, according to industry watchers. 

This is “reflected very much in private markets, where there’s tremendous uncertainty around the forward path of pricing,” according to Ben Savage, a partner at Clocktower Technology Ventures. “In the middle and later stages it’s been a much more difficult year to find compelling opportunities.”

Fewer companies are seeking funding at late stage either because they have raised large fundings in recent years that can tide them over or because they are cost-cutting or seeking other types of capital, as venture capital is not flowing as freely as it did in 2021.

As investors turn away from late-stage financings due to pressure on valuations, companies that need to raise funding face a dilemma. Those not able to grow into prior valuations will be forced to reset. For example, in July Klarna slashed its valuation from $45.5 billion to $6.7 billion to better position itself should it plan to go public in the next year or two. Meanwhile, Instacart, cut its internal employee share price in October, resulting in an internal valuation cut from $39 billion to $24 billion. And in September, SoftBank cut its valuation in travel tech startup OYO from $9.6 billion to $2.7 billion. 

Sitting on funds

With record funds raised, how will the venture markets look in 2023 and beyond? 

“While there is still pressure to invest, it depends on fund size/length, relationship with LPs, and market volatility,” Lightspeed’s Ephrati, who manages the firm’s follow-on investment practice, wrote in an emailed response. “If a fund size is large ($1 billion-plus) with a 10-plus-year lifespan, investors can make the argument that markets are too volatile, private and public valuations have yet to converge, and there will be better buying opportunities in 2024.” 

He anticipates that VC financings will pick up in the second half of 2023.

“A ton of great companies will raise in Q3/Q4 2023 because they’re (a) running out of cash or (b) would like to take advantage of friendlier private market conditions,” he said. “Those companies will also have grown into their 2021 valuation — meaning, the gap and price distortion between a private company’s last round valuation and where public market comparables are trading will be smaller.”

Tech rout

Companies last year were advised to grow at all costs. Investors rewarded them with funding and high values, which in turn led to more than 1,400 private companies valued at $1 billion or more on The Crunchbase Unicorn Board. The majority of those, 1,192, have raised funding since the beginning of 2021. And over 900 of those joined the board since the beginning of 2021.

In 2022 the message became to cut costs and extend runway. 

What happens in 2023 is still unclear. Will those same companies that come through to the other side and ready to raise funding meet a venture market willing to fund them?

Learn More

The Costa Mesa, California-based startup locked up a Series E worth nearly $1.5 billion that values the company at $8.5 billion. That nearly doubles the company’s previous valuation in June 2021.

The funding round was led by Valor Equity Partners, with participation from Founders Fund, Andreessen Horowitz, General Catalyst, 8VC 1, Lux Capital, Thrive Capital, DFJ Growth, Elad Gil, Lachy Groom, Human Capital, Marlinspike, WCM Investment Management, MVP Ventures, Lightspeed Venture and US Innovative Technology Fund.

The funding round was rumored late this spring.

Big round

The round is one of the largest this year by a U.S. company. In April, Tencent-backed Epic Games raised $2 billion from Sony and Kirkbi. Then in June, Elon Musk’s space company, SpaceX, raised nearly $1.7 billion in June.

Anduril was founded in 2017 by Palmer Luckey, most famous for selling virtual reality company Oculus to Meta — then called Facebook — for $2 billion.

His newest venture promises to be even bigger. 

Anduril builds software and hardware enhanced with artificial intelligence and machine learning for the military and defense industry. It works with the U.S. and its allies to create drones, underwater vehicles and different operating and control systems.

“Anduril is a technology partner, not an equipment provider,” said co-founder and CEO Brian Schimpf in a blog post. “Security threats are evolving faster than the DOD can keep pace. In order to really outmaneuver emerging threats we need to move past just efficiencies and create clear step changes in capability, quickly.”

Doing something different

Luckey has said he started Anduril because many big tech firms were turning their backs on doing business with the U.S. Department of Defense, hurting the U.S. military’s ability to modernize as U.S. defense needs change.

However, the military and defense sectors can be hard to navigate for startups. Just getting started in the sectors can be extremely difficult and long sales cycles can crush a startup’s cash flow.

“Anduril has proven that our model — recruiting talented engineers, building quickly and efficiently using venture dollars, and selling next-generation technology off the shelf to the government — works,” Schimpf said. “And that with the right technology and incentives the government can be a nimble customer.”

The company certainly has seen significant growth. Just earlier this year, the company closed a 10-year, $967 million contract with the U.S. Special Operations Command. In the last 12 months the company has grown its employee count from 700 at the start of 2022 to more than 1,100 employees.

All of that is not to say the company has not had its critics. It has been criticized for possibly enabling the enforcement of border security policies and government surveillance.

Anduril plans to use the new cash infusion to accelerate its research and development and bring new products to market.

The company has now raised more than $2 billion, per Crunchbase data.

Illustration: Li-Anne Dias

Learn More

We spoke with co-founders and partners Nnamdi Okike, previous principal at Insight Partners and a board member at the NVCA, and Aaron Holiday, who was previously a software engineer at Goldman Sachs and currently sits on the board of Cornell Tech.

“We’ve had a lot of success in our first three funds in terms of returns and recent exits,” said Okike. The founders reached out to its limited partner advisory committee last year to strategize for its next fund.

“We’ve really focused on capital-efficient companies,” Okike said, commenting on the firm’s success in raising its fourth fund. “We shy away from a lot of the exuberance of the past couple of years.” 

Holiday noted that last year the firm’s portfolio raised $1.1 billion in follow-on capital, far exceeding the reserves of its core fund, which led to its first select fund. 

The firm is reserving 44% of the capital to invest in follow-on funding rounds, in what it calls a “tournament strategy” to invest in its most successful companies that could potentially return the fund.  

For its new fund, 75% came from existing LPs who stepped up. And 95% are institutional investors including endowments, foundations and fund of funds. 

645 Ventures invests at seed between $1 million to $5 million, and up to $10 million at Series A. From the select fund, it can invest between $10 million and $15 million. 

To source and track investment opportunities, an in-house four-person engineering team built Voyager, a core asset to the firm that enables it to find investments outside of the firm’s network. It also has an investment research team to evaluate opportunities, a success team to support its portfolio companies, and a finance and operations team. 

645’s winning bets

Since July the firm has had three portfolio companies acquired, and its first IPO. Washington-based FiscalNote, a global intelligence company, went public in August 2022 via a special-purpose acquisition. 

It is a seed investor in two San Francisco-based unicorn companies: user engagement marketing platform Iterable and cybersecurity company Panther.

It also has two emerging unicorn companies, both based out of New York, in its portfolio: sports network Overtime and barbershop management service Squire. 

The team raised its first fund of $8 million from high-net-worth individuals in 2014. Its second fund with its first institutional investors was raised in 2018, totaling $41 million, and its third fund in 2020 totaled $160 million.  

Among its Connected Network advisers it counts Howard Morgan, previously at First Round Capital, Scott Maxwell previously at Insight, and Greg Pass, previously CTO at Twitter.

Illustration: Dom Guzman

Learn More

The round was led by BOND, with participation from DN Capital, Dorsal Capital, Quiet Capital, Stanford Alumni Ventures (aka Spike Ventures) and Y Combinator, among other investors. 

The round is tied for the largest raise by a VC-backed Africa-based startup, matching crypto exchange KuCoin’s $150 million Series B in May, according to Crunchbase data.

On-demand services

Founded in 2017, Yassir offers a variety of on-demand services via its app, such as ride hailing, banking, and food and grocery delivery. The company operates in six countries and 45 cities, being particularly popular in the Maghreb region — Algeria, Morocco and Tunisia — and parts of French-speaking Africa.

The app has more than 8 million users, according to the company. Yassir plans to use the new proceeds to expand its reach into the region. 

“Yassir means ‘easy’ in Arabic, and our mission as a company is to make people’s lives easy,” said Noureddine Tayebi, founder and CEO, in a release.

“In the markets where we operate, we are already having a considerable impact on how people manage their day-to-day lives,” said Tayebi, a Stanford alumnus. “We look forward to expanding our presence into other geographies to become the first super app to achieve mass adoption.” 

Fundraising in Africa is often overlooked when discussing venture investment. Only a half-dozen VC-backed startups in the region have raised rounds of $100 million or more this year, per Crunchbase. 

While Yassir did not release a valuation, the company did say it is one of the highest valued companies in Africa and the Middle East. 

 The company has now raised $193.25 million. It last raised a $30 million Series A nearly 12 months ago led by WndrCo.

Illustration: Dom Guzman

Learn More

Each funding stage declined at different rates year over year for this past month. Late-stage funding dipped the most, by more than 60% year over year. Early stage declined by around 40% and seed by 20%.  

Seed and Series A fundings — while down — were the most robust funding stages when viewed by average and median sizes. From Series B onward, averages and median funding declines increase by each consecutive Series.

The number of companies funded also declined. We started the year with close to 3,400 companies funded in January 2022. In October, that number fell to 1,800 companies.  1

Leveled

In each quarter of 2022, funding declines have accelerated downward from the peak of the fourth quarter in 2021. The first quarter was down 13% quarter over quarter, the second quarter was down 26% quarter over quarter, and the third quarter was down 33% quarter over quarter.

Over the last four months — since the third quarter — funding has leveled off, averaging around $27 billion per month. 

Late stage

In this new funding climate, the largest pullback is at late-stage financings. In a funding market more disciplined about valuation multiples in later-stage financing, will large funding rounds disappear?

Late stage as a proportion of funding averaged 49% of funding these past four months, down from an average of 63% in 2021 and 58% for the first half of 2022.

“It’s very hard to see companies raise north of $200 million unless the company is absolutely crushing it on all cylinders,” James Ephrati from Lightspeed Venture Partners said in an interview. 

But late-stage funding has not disappeared. 

While those counts are down, 18 companies this past month each raised a funding round of $200 million or more compared to 70 in October 2021. That number reached 57 for companies that raised $100 million or more, compared to October 2021 with 139 companies.

And of the 1,400-plus companies currently listed on The Crunchbase Unicorn Board in 2022 to date, 513 have raised funding. Pacing has slowed with 131 unicorn companies raising funding in the second half of 2022 through October, some of these newly minted. In the 2021 and early 2022 funding cycle, companies built up war chests while funding was abundant as 950 still-private unicorns raised funding in 2021. 

Fewer companies are able to raise large financings in this very different funding climate, but those fundings are still happening as venture firms have geared up with record fundraises targeting late-stage fundings. 

Tech market turbulence

Meanwhile, as sales growth slows in the sector, tech companies are announcing new waves of cost cutting, hiring freezes and tech layoffs.

Bold tech plays launched years ago are also coming to an end. Autonomous vehicle startup Argo AI, which had raised $3.6 billion largely from car manufacturers Ford and Volkswagen, is shutting down due to its inability to attract new investors.

And in the most notable news, Twitter was taken private for $44 billion, a valuation that would not have held up in the current market. 

Crunchbase Pro queries listed for this article

All Crunchbase Pro queries are dynamic, with results updating over time. They can be adapted by location and/or timeframe for analysis.

• Global funding in 2022
• Unicorn leaderboard (1,413)

Methodology

Funding rounds included in this report are seed, angel, venture, corporate-venture and private-equity rounds in venture-backed companies. This reflects data in Crunchbase as of Nov. 4, 2022.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Illustration: Dom Guzman

Learn More

Very little about drug development is efficient. The failure rate for drugs making their way to commercialization is 90%, after which more than around $1 billion and 10 years is sunk into each one on average.

But technological advancements in data collection are propelling artificial intelligence in drug discovery, which may unlock the ability to find cures for diseases that evaded the scientific community for centuries. 

So far this year, startups in drug discovery raised more than $1.4 billion, according to Crunchbase data.

One of these startupsthem is Terray Therapeutics, an AI drug discovery platform founded by Jacob and Eli Berlin in 2018.

“There are thousands of problems sitting out there that we don’t know the answer for. Thousands and thousands,” said Berlin. “So having a platform that lets us go faster, be precise and scale can really transform the opportunities in front of us.”

How drug discovery currently works

Current processes of drug discovery are long and tedious. Scientists in academia or pharma make molecules. They look for “targets” (like proteins) the molecule can swim to in the body and deliver therapy. 

To do that, scientists need to make sure the molecule doesn’t mistake a healthy protein for a target, otherwise a drug swimming around in the body may attach to and kill a healthy cell—amounting to poison. Once scientiststhey get a target, it’s taken out of the body and tested against molecules in the lab to see what will stick. 

But as clinical trials continue, several of those drugs fail due to unintended toxicity in the rest of the body, or the drug itself working in the lab but not in humans. With those failures, it sinks millions of dollars and years of research are lost..

“It’s just this huge funnel where stuff can drop out at any point in time,” said Sara Choi, a partner at Wing VC who invests in health startups. “And I think that the problems are very much at the very, very, very beginning of this process.”

Terray and platforms like it work differently. Terray compares molecules against targets, and the AI assesses what parts of the molecule correlate strongly with the target. Terray can then make new molecules that correlate even more strongly, refining it. 

Through leveraging data, drug discovery platforms can better predict outcomes of drugs at the start of the process. AI matches molecules with targets and simulates how it will work in the body, giving it a better chance of surviving clinical trials and lowering toxicity rates in patients.

“At the end of the day, it’s about innovation and trying to find interesting, novel ways of treating some really unmet medical needs,” said David Crean, a biotech investor and managing general partner at Cardiff Advisory.

Pharma bets on early-stage technology

AI drug discovery is still nascent, and will require interdisciplinary knowledge of chemistry, computational engineering, machine learning and biology. Data collection in drug development only became popular in 2017, a shift we see in funding: Between 2017 and 2018, funding increased by 190%.  

“The foundational layers in terms of data generation were just not there for a long time,” Choi said. “In the last few years we have not seen the breadth of it. We’re just starting a data revolution.”

Nevertheless, large pharma companies like Eli Lilly are betting big on this tech to accelerate the pace of drug development, raising profits and getting medicines into the market faster. Many pharma companies partner with AI drug discovery platforms. For example, Earlier this year, Amgen and Generate Biomedicines announced a partnership potentially worth up to $1.9 billion earlier this yearn. 

“The molecules that come out of the drug discovery as a result of AI, there’s only a few in clinical development right now,” Crean said. “It sounds kind of Star Trek-y. Yes, it sounds exciting, but I think we just have to try and manage our expectations.”

Illustration: Dom Guzman

Learn More

Other investors in this round include Gradient Ventures, Scale Ventures and Workday Ventures.

We spoke with co-founder and CEO David Boskovic about the fast-growing company that has raised close to $100 million in three years. 

Flatfile has “expanded across enterprises, Fortune 500s, and our objective is to be part of every data exchange in the world,” said Boskovic.

Wide range of customers

The one surprising fact about this ETL (extract, transform, load) solution is that the company does not typically sell to chief information officers, but more often to product and implementation teams who need to manage vendor or customer relationships. 

“The problem with data exchange at the edge of the business is that every customer is bringing something different,” said Boskovic on its customers like CBRE collecting real estate data from brokers or Sage with accountants uploading client data. Data that is not accurate creates problems over time that can take weeks or months to address with customers going back and forth. “Flatfile automates that manual labor, that process, and just makes it drag and drop,” he said. 

From a revenue perspective, the company went from zero to $1 million in ARR in its first year, then close to $4 million in its second year, and is now tracking to 2x to 3x growth in its third year of revenue.

The company’s 500 customers include enterprise SaaS company Square, BambooHR and HubSpot. 

Flatfile’s customer fees range from free for companies with five to 10 employees who are just getting started, to a few thousand dollars, then all the way up to $500,000. Their largest customers pay well into the millions. 

“We started off initially as a button that could be added to a software allowing users to import data quickly. That button has grown to be an entire platform,” said Boskovic.

Illustration: Dom Guzman

Learn More

The minority growth equity investment follows a bootstrapped family-and-friends round in 2015 that accumulated less than $1 million. 

The company was founded in 2014 to help nonprofits better streamline their fundraising capabilities. GiveCampus acts almost as a Patreon for schools—it can receive donations from fintech platforms such as Venmo or PayPal, record in-person donations, and accept cryptocurrency, effectively making donations as easy as possible for donors. It also can identify and engage with active alumni to promote ongoing donations. 

The Washington, D.C.-based startup launched in 2015 and says it has since processed $2 billion in donations to more than 1,000 educational institutions. 

“As we embark on this next chapter, we will continue to obsess over the needs and priorities of our partner schools while integrating additional capabilities, data, and insights into our platform in order to drive even bigger impact,” GiveCampus co-founder and CEO Kestrel Linder said in a statement.

The company estimates annual earnings of more than $20 million and has been profitable since 2016. 

Startups add charitable arms to mission

Social impact startups that make donating easy through frictionless payments are starting to see massive growth, despite not hitting the billion-dollar mark. Between 2018 and 2019, funding in the space jumped 187% and peaked in 2021 with $485 million, according to Crunchbase data.

The majority of these companies aren’t fintech platforms like GiveCampus. One, Betterfly, is a benefits platform that leverages charitable giving to incentivize employees to use their benefits. The company raised $125 million in February. Another, Sharebite, raised $39 million in June. Sharebite is a meal delivery platform, and every meal ordered results in a meal donated, according to the company.

Illustration: Li-Anne Dias

Learn More