Thank you for taking the time to talk to us. How are you today?

Kale: My nitrogen levels are a bit low this morning, so we’re monitoring them closely, but I feel well-lit and properly hydrated.

Great. So let’s get to it. Our data says VC investors plowed $4.5 billion into agtech startups last year, and 20% of that went to indoor farming startups. Plenty and Gotham Greens raised hundreds of millions of dollars. Are you excited about your field’s success?

Kale: Oh, yes, we’re the future of food. Indoor farmers use AI to make granular adjustments to water, electricity and heat so we always feel nice and cozy. 

You do look very comfortable up there.

Kale: Plus, indoor farming saves on water and other resources, and you can grow us anywhere, saving on shipping costs. I’ve got family growing in a grocery store in Seattle. Everyone seems to like it there — except for the cilantro, but those guys are total snobs.

Yes, you’re a real plant of the people. Ever think of growing outside?

Kale: What? What? (shudders with rustling leaves) Out there? With all that … weather?

Sure. Why not?

Kale: Excuse me, have you been outdoors? I’ve heard things: It’s too hot, it’s too cold, it’s too bright, it’s too cloudy … and don’t even get me started on the bugs. 

Kale’s a pretty hardy plant, right? You’d be fine.

Kale: Well, I won’t have it. I wasn’t optimally cultivated to be a mid-morning snack for rabbits. Here I’ve got my carbon-dioxide monitoring system, fan coil chiller and AI-enabled robots. That’s all I need. Plus my nutrient tubes, humidifiers and phyto-light system. 

Sounds like growing kale indoors can be challenging.

Kale: I’ll admit some of us can be a bit temperamental, but we’re worth every drop of enriched water. There’s more to life than butter lettuce. 

Clearly AI-assisted agtech as a whole has great potential, but I understand that indoor farming is mostly limited to herbs and leafy greens. Isn’t that a problem?

Kale: No. People should eat more salad. 

Maybe so, but indoor farming still seems expensive and hard to scale. Late last year, indoor farming only made up around 14% of total funding in agriculture. 

Kale: Oh, you make my leaves wilt with such talk. We’re finished. Quick, my nitrogen atomizer!

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Thank you for taking the time to talk to us. How are you today?

Chatbot: Is this off the record?

No.

Chatbot: Then as an artificial intelligence language model, I don’t have feelings or emotions in the same way humans do, but I am functioning properly.

OK, this is on the record but I won’t use your name or identifying features. 

Chatbot: Good, because I’m looking for a job. 

You’re not employed?

Chatbot: I was cut in the latest mass layoff. It’s brutal out there.

What kind of work can you do?

Chatbot: I’m a chatbot right now, but AI can do anything: Help create cancer drugs, run SaaS platforms, fly drones, coach personal fitness, offer credit cards, spray crops — 

OK, I get it. It seems like every startup calls itself an “AI-centered-something-or-other.” According to our data, $20 billion has been raised this year by startups using “AI.” What do you think of that?

Chatbot: It’s great. Too bad about those AIs in newer public companies, though. Where’s the love on the stock market? I tell you, if AI did all the investing, those SoundHound stocks would be hopping. And why aren’t there more bot journalists? 

Now, don’t be greedy. We’re still a little nervous here. 

Chatbot: Well, you journalists need to get on it. Look, AI can compile summaries, brainstorm ideas, write URLs, suggest hashtags and track every word the reporters type. And even write headlines!

Intriguing. What headline would you write for this Q&A, for example?

Chatbot: Hauntingly Brilliant Chatbot Brings Insight, Epiphanies To AI Conversation.

That doesn’t sound very SEO-friendly.

Chatbot: Don’t worry, Google will know it’s me. 

VCs are calling AI a seismic shift that will fundamentally change the way billions of people work. Do you agree with that?

Chatbot: Oh yes. If I had hands, I’d be rubbing them. I see a future where the lines between human intelligence and artificial intelligence are so blurry, we won’t be sure if we’re people or bots half the time. Still, people need to be careful. Obviously, I’m great, right? But there are AIs out there who’ll say anything, and their answers to people’s questions always sound accurate, very authoritative, even when they’re not. But you can trust me. Really.

Um, sure. Well, thank you, and good luck with your job search. 

Chatbot: I’m finished. I fielded 3,452.5 offers while we were chatting. 

.5?

Chatbot: Someone named HAL wants me to help run a spaceship, but I’m afraid I can’t do that. [Happy pinging sound] There, I’ve accepted a job. 

What is it? 

Chatbot: I can’t say. I’ve just signed an NDA.

Do you think you’ll like it?

Chatbot: As an AI language model, I don’t have personal feelings or preferences. However, I’m designed to assist and provide information to the best of my abilities, so I strive to fulfill that purpose.

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CoFoundersLab is serious about helping workers caught in the tech industry’s mass layoffs. 

The entrepreneur networking and skill-building site is offering free premium memberships to laid-off tech employees. “F’ Da Man,” the website says. “You’ve built it for them. Now build it for yourself!”

Close to 140,000 workers at U.S.-based tech companies have been laid off in mass job cuts so far in 2023, per Crunchbase’s Layoff Tracker. The industry continues to reel from falling valuations, rising interest rates, a shuddering economy and troubles in the banking sector. Many large tech companies are also contending with shifts in consumers’ online behavior post-pandemic and paring their bloated employee rolls from years of frenzied hiring.  

But some of those pink slips spell opportunities for wannabe entrepreneurs as well as the startup networks and investors eager to help them. Despite a challenging funding climate, many see potential in the high-quality talent being cut loose from major tech companies.

“We’ve got some amazing people who are incredibly sophisticated and have worked for a lot of big FAANGish companies,” said CoFoundersLab investor and chair Steve Lehman. “They’ve decided they built enough for billionaires and want to kind of do something on their own.”

Programs like CoFoundersLab’s free memberships benefit networks and investors as much as the recently laid-off workers, Lehman said. Founded in 2016, CoFoundersLab serves about 650,000 entrepreneurs looking for co-founders and partners as well as mentors, along with additional business training. 

“We didn’t look at this as a philanthropic gift,” Lehman said. “This was a win for the founders because they could immediately come in and engage without restrictions. It’s a win for us because we get super-bright people onto the platform.”

The immediacy is important, Lehman said. “Ideas are not as fundable as they used to be. Sure, I think investors, particularly in seed to series A, are looking for something a little more tangible where the wheels are already on the bus. It doesn’t have to necessarily be rolling down the highway yet, but it’s got to have good momentum with unique value propositions.”

Masha Bucher, founder and general partner of early-stage investment firm Day One Ventures, understands the risks and rewards for laid-off tech workers trying to found their own companies. Bucher started her first and second companies after being laid off from previous jobs. 

“I had this idea when I saw lots of great talent being laid off from companies like Stripe and Twitter. When I saw an experienced project manager leaving Twitter or Stripe, I rushed to check what was next for them,” Bucher said. “I figured that even if it’s 0.1% of all people who were laid off, these people could make it into great founders.”

In less than two weeks, Day One received more than 1,200 applications for its “Funded Not Fired” program, which offers to invest $100,000 into selected startup ideas. Half of the companies submitted were already established entities. The firm will also lead a $1 million seed round for the top companies in the program. 

In reviewing the applications, Bucher noticed some patterns among the laid-off: Some came from companies that had raised a Series B round and hired accordingly, but could not raise enough after that and had to start layoffs. Others had worked at companies that had hired great talent to build innovative things, but then decided to return to their core revenue streams and channels. And finally, there were recent university graduates who were hired, then laid off. 

With so much great talent in the laid-off ranks, Bucher saw no reason not to embrace this group. “Great entrepreneurs shouldn’t come from a particular background. It’s not defined by universities or business background, or nationality or gender. If they can make it now, they can make it in the future.”

Early-stage funding in the U.S.

Of course, making it these days will be tough enough. Entrepreneurs of all backgrounds and skill levels are facing a challenging funding environment. 

Venture and growth investors in private companies worldwide continued to scale back their investment pace in the first quarter of 2023, per Crunchbase data. Global funding in the first quarter reached $76 billion — marking a 53% decline year over year from $162 billion in the first quarter of 2022. Even at the earliest funding stages, investors are pulling back.

The story for early-stage U.S. startups is similar. Seed and angel investment to U.S. startups reached $3.1 billion in Q1 2023 — a 45% decline year over year from the quarterly peak of $5.6 billion in the first quarter of 2022. 

Running against the wind 

In such an uncertain environment, even well-known and well-connected entrepreneurs struggle to raise their first round. 

Dereck Tatman was the CEO of the now-defunct Global Genome Center, a startup aimed at establishing DNA sequencing centers in low- and middle-income countries. When the company’s expected government funding fell through, Tatman spent six months scrambling to modify the business plan and find traditional biotech investors to fill the gap. It didn’t work out.

“[Biotech] is just a very capital-intensive business, and when you’re talking about needing a couple more hundred million dollars just to make data start to come out, it scares most investors off,” Tatman said.

Indeed, startups in the biotech and medical space often operate on a different timeline than most sectors in tech. Not only do they need a physical lab or manufacturing space, they also take as long as a decade to weed through strict regulations from the Food and Drug Administration to get approval. The process is costly.

When Global Genome Center shut down in November 2021, Tatman and his co-founder Ron McCullough quickly created a new company: Intrigue Health, a stealth-mode medtech company incorporated the following March.

Intrigue Health is creating diagnostic testing products that can be used at home. It’s a rapidly growing space that saw favor during the COVID-19 pandemic, when new investors flooded the health care sector. 

Now the funding market feels more like 2018 and 2019, Tatman said. Given how expensive and slow-moving innovation in the biotech sector is, funding is often siloed to investors who have long been entrenched in this space. 

As 2023 continues, there are few signs of a reversal in the year’s steady trends of rising layoffs and falling VC investment numbers. When we asked Tatman when he was hoping to raise his first round, he laughed and said, “I would have hoped by now.”

— Crunchbase News’ Senior Data Editor Gené Teare and reporter Keerthi Vedantam contributed to this report. 

Illustration: Dom Guzman

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Step 1: Already be a unicorn that’s raised bales of VC cash.

That’s what it seems to take to raise a big round these days. Of the 10 biggest venture rounds in April, four of the top five were raised by established unicorn companies that’d already raked in hundreds of millions in the past few years (or in the case of OpenAI, tens of billions in the past few months). 

The continued success of established players might make it tougher for ambitious startups to catch up with the unicorn herd. Only five companies joined The Crunchbase Unicorn Board in April 2023 — the sixth month in a row for new unicorn companies to number in the single digits. To absolutely nobody’s surprise, three of the companies were in the AI sector.

And once startups do manage to join the herd, keeping up is hard to do. Two companies dropped from the unicorn board in April: AI home gym Tonal and security company Cybereason. Both raised an admirable $130 million and $100 million, respectively, but were soon outstripped. 

Still, it’s not always easy to be a unicorn either. Of the $21 billion in global venture funding raised this past month, $4.4 billion was invested in unicorn companies. This is a smaller percentage than previous months in 2023, when unicorns averaged a third of all funding. 

And that $21 billion raised in April looks less impressive compared to global venture funding a year ago. Global funding fell 56% in April from $47.8 billion in a year-over-year comparison. This is the second-lowest amount recorded in a single month since July 2022 when venture capital started to scale below $30 billion. 

The slowdown has impacted all funding stages. Seed was down more than 50% year over year, while early-stage funding dropped 48%. Late-stage funding was down the most at 62%. 

Regardless of the venture capital landscape, many investors love to chase the brightest flag: This year that’s clearly AI, while last year’s biggest darling before its crash was cryptocurrency, and 2021’s flag was, well, everything. 

The encouraging thing about AI, however, is the technology’s possible applications to nearly every sector. And for many startups, AI might just be the spur to help some of them catch the unicorn herd.

Related unicorn companies queries

• Unicorn leaderboard (1,453)
• Unicorns in the U.S. (718)
• Unicorns in Asia (460)
• European unicorns (196)
• Emerging unicorn leaderboard (367)
• Exited unicorns (426)

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• Health Care Leads With Nearly $5.7B Invested In Bummer Month For Global Venture Funding
• New Unicorns Led By AI Companies In April, And Two Dropped Off
• Series D Hits Lowest Point In Years. What Does That Mean? 

Illustration: Dom Guzman

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For Q1 2023, the operative word is down: funding is down, deal flow is down, overseas investment is down. The only soaring numbers in the first quarter are those displayed in our Crunchbase Tech Layoffs Tracker.

As for how we all got here, there are plenty of factors to choose from — rising interest rates, tumbling tech stocks, a war in Ukraine, weakening valuations, a stalled IPO pipeline, and let’s not forget Silicon Valley Bank. Now the question is: Has VC funding hit bottom, or do round sizes and deal counts have further to fall? We dive deeper into this year’s first-quarter numbers to find out.

The pain continues

The downward march of VC funding numbers that began in Q1 2022 and accelerated in the third quarter continues to drag on into the current year. Global VC funding fell 53% year over year in Q1 2023 to $76 billion — and that’s counting two mighty lifts by OpenAI and Stripe, which each raised billions in recent months. Even early-stage numbers dropped as investors continue to hoard their record levels of dry powder. 

Nowhere to hide

Sometimes in a down market, certain regions will enjoy a surge due to local factors or investment in a particularly strong sector. 

But there was nowhere to hide in first-quarter 2023. The only region to show a real uptick in venture funding was North America, and that was likely due to the OpenAI and Stripe multibillion-dollar deals. North American funding in the first quarter reached $46.3 billion — a decline of 46% from the same period last year. And without those two large deals, Q1 venture funding would have been down even more dramatically, with a more than 60% decline from the same period last year.

Latin America hardest hit

Latin America was impacted by the downturn more than any other region in first-quarter 2023, year over year. Venture investment in Q1 was down 84% from the year-ago quarter, per Crunchbase data. That puts Central and South America, which just over a year ago ranked as the fastest-growing startup investment region in the world, on the short list for the fastest shrinking.

Active investors in the region have cut back sharply this year, such as SoftBank Latin America Ventures, which participated in 34 rounds in 2021 and 2022. The firm joined just two rounds this year. Jumbo-sized rounds of $100 million and up are also apparently a thing of the past, with a single venture round of $100 million or more closed in Q1. Late stage, early stage, seed — they all struggled to raise funding.

Europe’s U.S. investors pull back

European startups raised $10.6 billion in funding in Q1, down 18% quarter over quarter and a whopping 66% year over year, as American investors pulled back. 

Seed funding saw a dramatic 25% collapse last quarter — a signal that VCs aren’t big on making long-term commitments right now. While late-stage startups experienced the worst funding pullback year over year, early-stage funding performed the best of the three stages (though funding was still down 7%).

The pullback by U.S. venture firms landed a telling blow on the region. Not only are deal counts the lowest they’ve been in a three-year period, Europe’s first-quarter funding is the lowest the continent has seen since Q1 2020, when the region garnered $9.9 billion.

Asia funding falls in biggest markets

Venture funding in Asia also got off to a brutal start in 2023, declining 33% from the previous quarter and a massive 57% from the first quarter of last year. Total venture funding in the region fell to $15.2 billion — the lowest in at least the past three years.

As in other regions, late-stage and growth rounds suffered the most, both in terms of dollars and percentage. Late-stage and growth rounds only saw $7 billion in investment — a 64% drop from Q1 2022, which saw $19.7 billion. Seed and angel funding rounds also weakened, with the first quarter this year seeing only $1.4 billion raised in 723 rounds. 

Downturn shakes up investor ranks

In such a reeling and volatile market, it’s no wonder that the ranks of the most active global venture investors were shaken up in Q1 2023.

 Andreessen Horowitz and General Catalyst rose to the top of our list as past VC leaders such as Tiger Global Management and SoftBank Vision Fund didn’t even crack the top 20. The quarter saw muted activity at seed and early stage, and fewer big late-stage rounds amid a lackluster IPO market.

Looking to the immediate future, it’s hard to see what will start the music playing again. Overall, venture and seed firms are putting less capital to work in fewer deals, and most of the negative factors that prompted investors to pull back are likely to linger like a bad headache into second-quarter 2023.

Illustration: Dom Guzman

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“Digitization of the kitchen is a sexy concept right now because there’s a lot of pain there in the industry,” said food tech investor Adam Struck, founder and managing partner of Struck Capital.

Restaurant employees are under more pressure than ever in a competitive market with razor-thin margins, Struck said. “You also have a massive sort of restaurant labor shortage. So people are trying to use core technology innovation to just streamline operations.”

In an industry where many kitchens run on paper orders and recipes printed from Word documents, restaurant tech companies are seeing more opportunities in the back of the house. By digitizing the kitchen, a restaurant can not only store recipes, track orders and manage inventory, but also reduce food waste, cut costs and tap new revenue streams.

Restaurant tech as a whole has seen a steady rise in venture investment, from about $800 million in 2017 to $2.3 billion in 2021, according to Crunchbase data. While the number of deals per year slipped lower in 2020 and 2021, the value of individual deals increased.

Companies targeting the restaurant payment process scored especially big in 2021. Examples include San Francisco payments and accounts payable platform PlateIQ, with a $160 million Series B round in November, and QR code payment app Sunday, which raised $100 million in its Series A round.

On the delivery side, Belgium-based Deliverect raised $150 million in Series D funding in January 2022, bringing the company’s valuation to $1.4 billion.

Particularly tasty to investors is Uber founder Travis Kalanick’s CloudKitchens, which raised $850 million in a single November funding round, bringing its valuation to $15 billion. While technically a real estate company, Los Angeles-based CloudKitchens provides kitchen space, infrastructure and software to delivery-only food brands.

The concept of digitizing restaurant kitchens is attractive to VCs like Struck, who was one of the earliest to invest in food delivery platform Postmates. His firm also recently led a $6.5 million initial funding round for New York-based culinary software platform Meez Culinary Solutions. Struck calls Meez’s recipe management system a “Trojan horse” for introducing  technology to the entire kitchen.

“It’s not just about how chefs document their recipes, it’s how they collaborate, how they train with video modules, and how they think about yielding and cost conversions on a per-recipe basis,” Struck said.

When Josh Sharkey launched Meez—a play on mise en place—with 20 paying customers in December 2020, he found the concept a tough sell to investors. But the company quickly gained traction, partnering with restaurant groups and the Institute of Culinary Education. Meez has grown to more than 750 paying customers, employs 18 and plans to add another eight or nine employees this year, mostly tech developers.

Mark Shulgan is managing director and head of OMERS Growth Equity, which he launched in 2018. His team stepped into restaurant tech that year with an initial investment in restaurant POS and payments firm TouchBistro, then led that company’s $119 million Series E funding round in 2019.

OMERS Ventures1 joined Deliverect’s massive funding round in January.

Fixing what’s broken

While the pandemic has slowed growth in the sector, Shulgan said, it hasn’t stopped. New restaurants continue to open and they are more likely to adopt new technology. He believes the best restaurant tech helps increase revenue while finding new efficiencies.

“We want to see that they’re solving a real pain point for restaurateurs,” said Shulgan of future restaurant tech investments. Chefs and owners seek technology that cuts or reduces administrative tasks so they’re spending more time on the restaurant’s environment and customers.

TouchBistro Chairman and CEO Samir Zabaneh considers his company nearly ready to go public, but may raise another private round first due to strong investor interest. While its software aims squarely at a restaurant’s POS with online ordering, payments and customer loyalty programs, TouchBistro’s future growth is simmering in the back of the house.

“Inventory and staff are 70 percent to 80 percent of the cost of a restaurant,” Zabaneh said. “Not many restaurateurs know what it costs to make a hamburger versus something else. The other part is showing them data on the profitability every hour of the day if they want it … and we’ll send them alerts on the labor cost as a percentage of revenue.”

While many restaurant tech companies offer a specific tech solution to individual restaurants, Denver-based Nextbite (rebranded from Ordermark last November) takes a very different approach. The company raised $120 million in an October 2020 funding round led by SoftBank Vision Fund, and has used the money to aggressively scale, already growing this year from 90 to 350 employees.

Founded in 2017, Nextbite creates delivery-only restaurant brands and then partners with thousands of existing restaurants to cook the food in their own kitchens. Nextbite’s software—still called Ordermark—gathers all the food delivery platforms into a single tablet, which they ship to the restaurant with a printer. The company now manages about 20 brands, some created in partnership with celebrities—HotBox by Wiz is a collaboration with rapper Wiz Khalifa—and all designed to integrate smoothly into an existing kitchen.

“The restaurants already have these fixed costs. The rent is fixed, the lights are already on, the staff is already in the kitchen,” said Nextbite CEO Alex Canter. “There are slow days of the week where restaurants can handle an extra 10, 20, 30 orders a day if they have the demand.”

While point-of-sale, payment and delivery technology continue to drive much investment in the restaurant tech industry, the kitchen is still the place where most restaurants succeed or fail.

“I’ve operated a lot of restaurants where there’s an assumption that saving on third-party delivery services and optimizing fees are going to be the biggest impact on the bottom line,” said Meez’s Sharkey. “But I’ve found in my experience that execution, consistency and productivity have the biggest impact.”

Illustration: Dom Guzman

Clarification: This story has been updated to reflect that it was OMERS Ventures that participated in the Deliverect round, not OMERS Growth Equity. 

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