Venture Capital Funding Has Tumbled Back to 2020 Levels

Last month, Silicon Valley kingmaker Y Combinator warned start-up founders to “cut costs,” “extend your runway,” and “plan for the worst” as declining markets suggested venture capital funding would soon dry up like a California desert.

On Monday, new data showed that VC funding has fallen 27% in the current quarter. While the funding environment is no desert yet, it may be wise to treat any oasis as a mirage.

Let the Not Good Times Roll

Venture firms Sequoia Capital and Lightspeed Venture were also among those who warned portfolio companies last month to get ready for the end of easy money. Sequoia, notably, warned founders that the double punch of inflation and war were harbingers for a “crucible moment”– even more dire sounding than the presentation it sent to partners in 2008 titled “R.I.P. Good Times.”

Last year, global VC funding increased 111% to a record $621 billion, shattering the previous record set just a year before. But, according to new data from business analytics firm CB Insights, the makings of that “crucible moment” may be starting to materialize:

• The number of funding deals for start-ups around the world has fallen 23% from the first quarter to the second quarter of this year, and the amount of dollars in those deals 27%, both to their lowest levels since late 2020. Of particular note, funding for rounds Series D or later is down 43% in this quarter, meaning late-stage companies are being hit disproportionately hard.
• The drop in total funding dollars is significantly more than the 19% CB Insights predicted just one month ago.

Lay Low: While the labor market remains strong, the battering of tech stocks this year, and the rough funding environment, has already materialized in the form of layoffs. Over 16,000 tech employees were laid off in May and over 12,000 have been laid off this month, according to industry tracker Layoffs. In the meantime, here’s looking forward to the “R.I.P. Bad Times” memo.