In 2022, startup funding fell dramatically—down 67% year over year. Late stage funding took the largest hit (down 67%), but early stage (series A and B) also dropped 59%. Seed stage investments were down 37%.
This could lead to more acquisitions in 2023 as startups run out of funding and don’t want a down round. It could also mean in an increase in ‘structure’ in deals where investors come in at the same valuation but with more favorable terms like multiples on liquidation preference.
- Running a startup during a recession
- This is either a really good time to start a company or a really bad one
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According to a recent presentation by Redpoint, ARR multiples for Series B and C companies dropped sharply from the all-time-high in 2022 (100x) to a more sober 39x, representing a 4x premium compared to public markets.
A Wall Street Journal poll of economists found that the probability of a recession in the next 12 months is 61%, down slightly from 63% from October 2022 and significantly higher than the 2022 Q3 roundup.
In 2023, the average time between raising a Series A and Series B round increased to 31 months according to Crunchbase. With startup funding falling 67% in 2022, more startups could face a difficult time getting funding. Some predict startups will run out of cash in 2023 with the most fiscally conservative ones run out in 2025 unless conditions change.