Monthly VC funding fell below $20 billion in February, marking a two-year low. Jager McConnell, CEO of Crunchbase, joined Cheddar News to discuss the current funding climate and what lies ahead.

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Monthly VC Funding Dips Below $20 Billion in February

February marked a two year low in global VC funding. It was the first time funding around the world fell below $20 billion in a single month since February of 2020. The economic downturn, widespread tech layoffs and the ongoing issues facing the banking sector seem to be weighing heavily on investors. And after global funding slid in 2022, a slower funding climate could continue throughout 2023. So joining us now to break this all down is Jaker mcconnell, he's Ceo of Crunch Base. So Ja thank you so much for sorry Jagger. Thank you so much for joining us. Global Global Monthly VC funding fell to $18 billion in 2023. So what do you think is behind the drop? Yeah, unfortunately, this is just a continuation on the downward trend for the last year. Um you know, month over month, it's been declining and, and, and February was no different. It's been a rough, rough time as obviously there's a lot going on the world with the banking sector with valuations with the tech industry in general and there just hasn't been that fire starter moment to start having things turned around from the the V T perspective yet. Now, Series B funding has also fallen in recent months. The first quarter of 2023 investments are on track to come in at the lowest quarterly level in more than three years. So why do you think Series B funding specifically has decreased this year? Series B is a tricky time for a company to be raising money. Um Typically, it's the growth stage like you will be tripling your revenue. It looks like everything is great. You found product market fit um in a down market. Though, those metrics start to be harder to hit, it's hard to triple the business when people just pull you back because you're only going from three million to let's say 12 million revenue. So as an investor, you're looking at that and, and it's hard to understand is if that doubling of revenue is really an indication in a good market that that company would do. Well, there's no benchmarks for us to look at, there's nothing to compare to. So that V C has a hard time valuing the company, which means everyone pulls back, the entrepreneurs pull back. They don't want to get funding. V CS don't wanna make the investment because they're not really sure how to even inter series B metrics yet. So you get a massive pull back and that just chills the entire later stage market of VC funding. Now, let's talk about funding this January which was up in large part due to a $10 billion round raised by open A I. So why do you think this company in particular was able to raise so much money at a time when funding overall is down? Yeah, definitely skewed the metrics a little bit for January with that $10 billion round. Uh, largest funding round, I think since 2018, which is pretty crazy. Um You know that open A I we were hoping was gonna be that firestarter moment and it still might be this A I movement where there's a new platform layer. If you will on the internet, it used to just be aws, you run your services on top of it. Now there's this, this A, this A I element that every single enterprise software company, consumer software company, pretty much everyone needs to build into their product who's driving most of that. That's open A I, right. They're making just hand over fifth dollars here and that's why they were able to raise this incredible $10 billion round. Now, there's gonna be a lot of trouble down from that. There's a lot of little startups that also are trying to, to, to compete with Open A I or, or supplement or compliment open A I all of that um might be this, this, this fire starting moment that we need to get the, the, the V CS back engaged and say I don't want to miss out on this. I I have so I'm gonna go make an investment here um into this space. Now, I want to bring some things back to SVB, which was really known for initiatives where they funded a lot of women and minority owned startups. And these traditionally struggle with a lot of finding backers. I mean, it was crunch based themselves that pointed out that black founders only received 2% of all these funds in 2022 and women they received even less than that. So, with SVB collapse, what could it mean for these types of businesses? Yeah, unfortunately, it's not, it's not good news as, as we've seen and when investors get fearful, they tend to pull back on, um, minority owned or, or, or minority, uh, sort of run businesses at a faster rate than everyone else, which is not, not good. Um, so, unfortunately, I think it's, it's, it's not good news in the short term. The good news though is there are more funds that are focused on the underrepresented classes and make investments there. So hopefully we'll start to see that increase, which could start skewing the, the, the V C dollars in a different direction. But, uh, again, unfortunately, in a down market, I don't see, um, V C prioritizing that like they were in 20, 20 and 2021. Now, speaking of that down market, what could 2,022's down year for V C funding mean for this year? And are the factors that were in play last year going to continue on to this year? Yeah, I'm in the bearish camp here. We need to see something else happen. We need to see public markets start massively recovering. We need to see interest rates starting to go down. We need to start seeing banks having stability and recovery. We just need something good even the war in Ukraine and we can end that and have that be over. That would also maybe you start getting people optimistic again until then I see the same downward trend in 2023 I hate to say it even in 2024. Um, so there's a lot of, a lot of scary things there and with the banking, like, I think there's still room for errors here, there's still issues that could come up where as more like even Crunch base, like we're thinking about how do we move our money into sort of a safer framework that can even create bank runs that could have smart, uh, banks have issues. And that's so I don't think we're, we're out of the woods here yet. So I'm gonna say 2024 we might start to see a recovery. Not 2023. Well, we'll look forward to 2024. So thanks to Jagger mcconnell, he's the Ceo of Crunch base.