Venture capital pulls in its horns in first half of 2023

Venture capital funding globally almost halved in the first six months of the year, data from research firm PitchBook showed, highlighting a lack of enthusiasm on the part of investors and less demand amid sharply higher interest rates.

The 48% decline in investment to $173.9bn (about R3.3-trillion) and the 19% drop-off in deal numbers comes despite huge interest in artificial intelligence (AI) start-ups sparked by the success of OpenAI's ChatGPT.

Investors poured more than $40bn into AI start-ups in the past six months, the data showed. That includes a $10bn investment by Microsoft in OpenAI and $1.3bn in funding for rival Inflection AI.

By region, Latin America had the biggest drop with an 86% slump, while the US and Europe fell 65% and 69% respectively.

Investors say not only have higher interest rates caused a rethink of valuations, the IPO drought and lack of other exit opportunities has made them more selective.

“I haven't written any cheques in the past 18 months,” said Kevin Colleran, a co-founder at early-stage company Slow Ventures. “I have 30 portfolio companies that I need to help figure out how to survive. There is no point for me to add to the misery.”

PitchBook said large investors weren't actively participating in venture funding and outsized deals that had pushed deal values to records were no longer happening. Venture capital funding globally hit an annual record of $745.1bn in 2021.

Many companies that secured funds in 2021 are still sitting on a considerable amount of money and feel little need to come back to a market that expects much lower valuations, investors said. But they added that a moderate pickup in demand could emerge in the second half. — Reuters