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June 19, 2023 | Scarce and Expensive Funding Brings Financial Sobriety
Danielle Park
There’s a timeless adage that when money is cheap and easy, many people do dumb things with it. When money was free and easy (2010 through 2022), dumb things were all the rage.
In 2021, $346 bill
ion was handed out to startups by US venture capital firms alone, averaging more than $86 billion a quarter. In the three quarters through Q1 2023, that funding rate averaged less than $42 billion (chart on the left).
With central banks fixated on tighter for longer, capital continues to sober up. See More Startups Throw in the Towel, Unable to Raise Money for Their Ideas:
The pace of startup shutdowns, fire sales and sharp business-strategy changes is picking up. Fresh capital from venture investors and bank loans is scarce and expensive. Going public is nearly impossible. Some business models that worked when cash was cheap are unsustainable now. That means venture-backed startups are running out of money and facing hard choices.
“The Mass Extinction Event for startups is under way,” said Tom Loverro, general partner at venture firm IVP, in a recent tweet. Loverro said in an interview that none of his portfolio companies has shut down recently, but it is early days in what could be a wave of startup failures. “It’s like the entire industry went out drinking and is now suffering the consequences,” he said about the venture boom of 2021 that he believes is heading for a bust.
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Danielle Park June 19th, 2023
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