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Venture Capital in 2023

By May 7, 2024Commentary

Too much money was sloshed into the American financial system during the epidemic and a lot of that money found its way into technology, health care and other new and growing firms.  As is usually the case, when there is excessive funding, a lot of bad investments are made that provide poor returns.  Venture firms are not universally run by geniuses.  The latest report on the state of the US venture industry covers 2023.  At a high level, in 2023 there were 3417 active venture capital firms, which collectively did 13608 financing rounds for a total of $170.6 billion invested.  $67 billion in new funds were raised by 474 venture firms.  These numbers are down or only slightly up from 2022.  The industry is kind of on a plateau, after the dramatic upswing, then downswing during the epidemic years.

The one part of the cycle that is not doing as well, is exits, with a combined value of only $61.5 billion, well below earlier years.  Exits are important because these funds flow back to investors, who then typically take a large portion of what they receive and re-invest it in new funds.  Lack of exits can clog up this process and also creates hesitancy about investing, when returns seem uncertain.  Fortunately most existing funds still have large amounts of unused prior investments that serve as a reserve.  A good sign is that there was increased activity outside the traditional East and West coast markets, with growth in the South in particular.  Health care companies received a total of around $40 billion in funding, second only to software.  So venture investing is very important for health care innovation.   (NVCA Report)

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