Home Entrepreneurs Startup investment fell in late 2022 amid recession fear: Crunchbase

Startup investment fell in late 2022 amid recession fear: Crunchbase

by Ozva Admin
Startup investment fell in late 2022 amid recession fear: Crunchbase

the thought of a possible global recession you might have to cut spending. Start-up investors are doing it, too.

Venture capital investors are pumping the brakes in aggressive financing of start-ups, spooked by an uncertain economic outlook, drop in tech industry stock prices And growing recession fears. In the last quarter of 2022, investments in North American startups fell 63% compared to the same period a year earlier, according to a new Crunch Database Report.

In other words, if you are among the large number of Americans waiting quit your job and look for a full-time side jobyou may want to wait a while.

“A year ago, we didn’t anticipate that we would be where we are today,” Jeff Grabow, a venture capital leader at global accounting firm Ernst & Young, tells CNBC Make It. “Over there [were] none of the storm clouds on the horizon that have come through geopolitical instability, more endemic inflation and rising interest rates and recession fears.”

Another prominent factor behind the sharp decline: stock market turmoil that caused valuations of tech startups to plummet, freezing the market for IPOs and resulting in tech layoffssuggested Crunchbase in a blog post.

It is not surprising to see such market volatility cause a drop in investment in late-stage startups. However, early-stage startups also saw reduced appetite from investors, Crunchbase noted.

Notably, 2021 set a record for startup investments, with VC spending $329.1 billion, according to Crunchbase data, so the significant drop in 2022 still represents the second-highest amount of annual funding since the company began tracking these statistics.

But the decline represents more than a temporary setback, Grabow says: rather, it’s a market reset that could lead to an even “softer” market for startup investments in 2023.

“This business, it’s a marathon,” he says. “You can’t run into it, and we’ve been running for a while. So now it’s time to get back to cadence.”

Many investors expected inflation to be under control earlier, along with a slight increase in interest rates, Grabow notes. Instead, the Federal Reserve raised interest rates to their higher levels in 15 years, which has helped cool inflation while temporarily damaging tech stocks.

As a result, venture capitalists have pulled back significantly on the aggressive funding trends of 2021, Grabow says. Suddenly, instead of VCs competing over who funds a new start-up, that company might have a hard time convincing investors to open their accounts, she adds.

Funding will not disappear completely in 2023: in the last two decades, a long chain of successful companies Launched out of doldrums, giving venture capitalists a track record of startups still worth investing in.

But if you still don’t have enough capital to survive for the next two years — about the amount of time many venture capitalists expect this down period to last, Grabow says — don’t count on getting a significant amount of outside funding for your idea. At any time.

“The hope is in two years, we’ll get past the uncertainty… and you can come out the other side and take a rally,” Grabow says.

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