For the U.S. startup funding ecosystem, Silicon Valley Bank’s collapse looks like the equivalent of adding ice to an already cold bath.
Already, venture funding has contracted sharply from its peak. In the fourth quarter of 2022, North American startup investment was down 63% year over year, driven largely by plummeting later stage financings.
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We expect the first quarter of this year to come in far lower than Q4. Contributing factors include an absence of pre-IPO rounds, diminishing Series B volume, and waning enthusiasm for formerly hot sectors, including fintech, Web3 and consumer products.
The SVB situation also appeared to put a pause on large funding announcements. In the three business days following the bank’s share price meltdown on Thursday, we’ve seen just $135 million in new seed through stage U.S. funding announcements, far below average.
A preliminary query 1 of seed through later stage financings shows $13.7 billion invested so far in Q1. Even with a couple weeks to go, we’re on track to come in well below the prior quarter, which saw over $24 billion in invested capital by this metric.
Since funding was falling well before SVB’s implosion, we can’t say its closure is the driver. However, for those looking for reasons to stay pessimistic about the funding environment, it’s certainly good fodder.
Lux Research, a deeptech-focused research and advisory firm, predicts that VC funding will be harder to come by going forward.
“Some of the tightening will restore some much-needed discipline — the days of VCs flinging offer sheets at buzzy startups with minimal due diligence are clearly over — but many worthy companies will also likely struggle to raise funds,” the firm wrote on its website.
Beyond equity funding, investors and entrepreneurs tell Crunchbase News that SVB’s demise has created a huge hole in the market for venture debt. Few banks have the expertise and willingness to extend loans to far-from-profitable tech startups and biotech ventures.
For now, we’re still expecting to see a bit of a pickup in funding announcements given that the SVB situation has stabilized somewhat with deposits guaranteed. Companies with already-completed rounds might delay a public announcement for a couple days, but likely not weeks.
However, for the coming months, it’s likely SVB will contribute to a chillier funding environment.
Illustration: Dom Guzman
The dataset for the preliminary query does not follow the methodology Crunchbase uses for our quarterly reports, which include some growth-stage financings and deals not explicitly labeled by stage, as well as a more rigorous curation of larger rounds. ↩
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