The Market Bottom
A Once-in-a-Decade Opportunity for Early Stage Investing
The startup and early-stage venture ecosystem continues to navigate challenging waters in 2022 and into 2023. However, beneath the surface of gloomy headlines and declining deal activity, this period may present unique opportunities for savvy investors willing to take a patient, long-term view. According to the latest quarterly report on the state of U.S. early-stage venture from AngelList and Brex, while investment activity has slowed to record lows, valuations are coming back down to earth after reaching dizzying pandemic-era highs.
For general partners with dry powder, the current correction may offer a rare chance to deploy capital into high-quality startups at reasonable valuations not seen since before the unprecedented bull market that started in 2009. Though the environment remains difficult, the most optimistic investors can see light at the end of the tunnel—the pot of gold that awaits those who have the foresight to invest counter-cyclically in what could be the bottom of the market.
Here is a summary of the key points from the report:
- Q2 2023 was the worst quarter ever for startup dealmaking, with activity rate hitting a record low and positive activity rate hitting near-record lows. This suggests we may have reached the bottom of the market.
- Median valuations continued to decline, indicating startups are lowering their valuations likely to attract investor interest. However, average valuations were mixed.
- AI/ML was by far the most popular sector for investing on AngelList, capturing the highest share of deals and capital deployed. Interest in other sectors like fintech and Web3 waned.
- Startups are increasingly practicing financial discipline and cutting spend, especially marketing, advertising, and recurring software costs. This is particularly true for seed stage companies.
- Spend data shows the tech ecosystem is increasingly global, with startups transacting in more countries. AI spend is also rising over time.
- While Silicon Valley remains dominant, data shows startups launching outside the Bay Area continue to rise, especially in Austin and Miami.
- The optimistic view is we've hit the bottom and early stage venture is poised to rebound. However, previous research suggests recovery may not happen until 2024.