2023 was a shaky year for startup funding after an exorbitant rise in the Covid-19 pandemic era.
In 2021, global venture capital investment peaked at $776 billion, while they sharply dropped to $381 billion in 2022.
The year 2023 witnessed a further 42% decline in VC funding, which stood at a cumulative $221 billion.
The graph below highlights sharp variations in VC funding from 2019-2023, every quarter:
This slump is attributed to a global economic slowdown, sluggish trade, and declining financial activity.
In the US alone, over 191,000 tech employees were laid off from their jobs in 2023, which was 53% higher than the previous year.
All these factors combined caused caution among investors as a result of which VC funding was on the decline.
However, if we analyze other factors such as late-stage funding and pre-seed funding, we get a clear picture of what to expect in 2024.
Late-Stage Funding
Late-stage funding is the investment made in startups that have progressed through the early stages of market development and user traction, typically Series C.
The median late-stage funding round in 2023 settled at $100 million, reflecting a decrease from $150 million in 2022.
This shift suggests a more cautious approach from investors, favoring companies with proven track records and lower risk profiles, as they navigate the uncertain economic climate.
Seed-Stage Funding Trends
The median seed-stage funding round in 2023 stood at $2 million, down from $3 million in 2022.
This trend is likely to follow in 2024, indicating increased scrutiny from investors.
They are now prioritizing funding startups with strong founding teams, clear business models, and a compelling path to market:
Stage | Median Funding Round Size (USD) |
Seed | $2 million |
Early Stage | $10 million |
Late Stage | $100 million |
Artificial Intelligence
Artificial intelligence continues to captivate investor interest and 2024 is set to witness a sharp incorporation of AI across multiple companies.
Crunchbase data reveals that AI-related startups raised nearly $50 billion in 2023 in funding.
AI’s ability to streamline processes, automate workflows, and analyze vast amount of data, make it the center of attention for investors seeking high-growth opportunities.
Moreover, AI is finding increased use in multiple industries including healthcare, finance, e-commerce, and more.
For example, in healthcare, AI-powered diagnostic tools are analyzing medical images with remarkable accuracy, aiding physicians in early detection of diseases such as cancer.
In finance, AI-driven algorithms are transforming investment strategies, allowing more informed decision-making and better risk management.
Similarly, AI-based personalization algorithms display curated product lists to buyers, enhancing customer experiences across e-commerce platforms, which eventually drives higher engagement and sales.
Sarkar, founder of Advaita Capital, a 100% women-POC owned growth VC firm that is focused on investing in deep technology that will advance the human race, anticipates that “the next race for 2024 may be investing in AI chips and the rise of domestic semiconductor startups.”
“This [act] will catalyze the next 20-30 years. We will see advancement of sci-fi R&D tech, where the commercialization of quantum computing, nanotech, clean tech, advanced medtech, AGI, robotics, and personalized AI will boost US competitiveness.
That means 2024 will continue to see early-stage funding in deep technology and hardware sectors.”
As we move into 2024, the momentum behind AI shows no signs of slowing down.
With advancements in machine learning algorithms, natural language processing, and computer vision, AI is poised to become even more integral to businesses across various sectors.
Startups, in particular, should take note of this trend and strive to incorporate AI into their strategies.
By incorporating AI-powered solutions, startups can gain a competitive edge, enhance efficiency, personalize customer experiences, and unlock new revenue streams.
Layoffs and Closings
In 2024, startups are still grappling with layoffs and closures, reflecting the tough market conditions.
Over 190,000 job cuts were reported in U.S.-based tech companies in 2023. This trend isn’t showing signs of slowing.
This makes it crucial for startups to focus on efficiency and profitability to secure funding.
Last week, Google announced 1000 job cuts, joining companies like Amazon, Citi Group, Twitch, Microsoft, eBay, and UPS who have laid off a significant portion of their workforce.
Investors are closely examining startups' ability to navigate these challenges and stay resilient.
To stand out, startups must show they can manage costs effectively and operate efficiently.
Those with clear plans for profitability are more likely to attract investor interest.
Despite the tough environment, startups have opportunities to innovate and disrupt traditional industries.
Building strategic partnerships can also help them access resources and networks for growth.
Geopolitical Uncertainties
Geopolitical tensions and macroeconomic uncertainties cast a shadow over the startup landscape, shaping investment sentiments and market dynamics.
As geopolitical events unfold, startups must remain agile and resilient in navigating global landscapes.
The convergence of geopolitical tensions with economic policy decisions underscores the importance of strategic foresight and risk mitigation strategies.
With mounting uncertainties on the horizon, startups must stay attuned to geopolitical developments to seize opportunities amidst volatility.
Revival in IPOs
The resurgence of exit opportunities injects renewed optimism into the startup landscape.
As public companies amass significant cash reserves, fueled by robust investor interest, startups stand to benefit from heightened acquisition and IPO prospects.
Crunchbase data underscores this trend, indicating a dip in M&A activity involving VC-backed companies in recent years, followed by a resurgence in 2024.
With anticipated IPOs from companies like Reddit and ServiceTitan, startups have a compelling opportunity to capitalize on the revitalized exit market.
Ethical Tech Investments
Environmental, social, and governance (ESG) investment is going to continue being important in the future, according to a 2023 Morgan Stanley Global Investment Survey.
It further revealed that 90% of high-net-worth individuals are interested in sustainable investing.
As environmental consciousness grows, investors are increasingly looking to support ventures that promote a sustainable future.
Startups with innovations in areas like renewable energy generation, circular economy practices, and plant-based alternatives are likely to attract significant funding.
This trend is expected to continue in 2024, creating fertile ground for startups developing solutions for clean energy, sustainable resource management, and eco-friendly products.
Rise of Remote Work & Collaboration Tools
The forced migration to remote work during the pandemic has permanently altered the business landscape.
A report by Owl Labs indicates that as of 2023, 70% of employees globally prefer a hybrid or remote work model.
This shift has fueled a surge in demand for robust remote work and collaboration tools.
This means that investors are likely to favor startups that develop innovative solutions for communication, project management, and virtual team building.
These tools can empower geographically dispersed teams to work seamlessly, fostering productivity and boosting employee morale.
Startups with a focus on features like real-time document editing, seamless video conferencing, and efficient project management are well-positioned to capitalize on this trend.
Emphasis on Cybersecurity
With the ever-increasing reliance on technology, cybersecurity threats are a growing concern for businesses of all sizes.
A report by Cybersecurity Ventures predicts that global cybercrime costs will reach $10.5 trillion annually by 2025.
This alarming statistic highlights the critical need for advanced cybersecurity solutions.
Startups offering innovative solutions in data protection, threat detection, and privacy compliance are well-positioned to secure funding in 2024.
Investors are increasingly aware of the rising importance of cybersecurity, making it a crucial factor for any startup hoping to gain traction.
Startups with a focus on areas like AI-powered security solutions, blockchain-based data encryption, and user privacy protection are likely to find favor with investors seeking to mitigate cyber risks.
In a Nutshell
After a funding slump in 2023, 2024 offers a cautious yet optimistic landscape for startups. Investors are now prioritizing late-stage funding for established companies and scrutinizing seed-stage ventures.
Moreover, artificial intelligence remains a hot area, and is gaining popularity among all industries. Amid these developments, layoffs and geopolitical uncertainties persist, and startups have to demonstrate efficiency and resilience in order to gain the attention of investors.
However, a potential revival in IPOs, the booming creator economy, and a growing focus on remote work, cybersecurity, and sustainability all present exciting opportunities for innovative startups to secure funding in 2024.