Georgia startups saw a 28% decrease of venture funding in the third quarter, prompting more layoffs, cuts to product development and marketing.
It was the third quarter in a row that venture capital declined after a record year of funding in 2021, according to PitchBook and National Venture Capital Association's latest report.
There was a 20% drop in venture deals nationwide from the first quarter’s record high, and the lowest count seen since the last three months of 2020. The quarter’s $43 billion invested across U.S. venture deals was a nine-quarter low.
Between July and September, companies in Georgia received $488 million across 55 venture deals.
The largest venture deal in the state was a $40 million Series B investment made to cryptocurrency exchange company Yellow Card Inc. in September. Other large deals included FullStory ($24M), Motivo ($14M), Evident ID ($14M), Emrgy ($13M), NineHertz ($10M), CereTax Inc. ($10M), Momt Technologies ($10M) and BioCircuit Technologies ($9M).
While Georgia got less total funding, its drop wasn’t as sharp as it was in competing Southeastern states. Comparatively, Florida saw a 37% drop down to $1.5 billion, while North Carolina saw a 69% drop to $827 million.
From the previous quarter, Georgia maintained its rank of No. 13 in terms of how much venture capital was invested. Top states were California ($19B), New York ($5.5B), Massachusetts ($3.9B), Washington ($1.6B) and Texas ($1.4B).
Impacts of less venture capital funding
A company that struggles to raise its valuation or raise additional capital could cut costs in product development or marketing, or lay off employees.
In recent months, fast-growing companies including Terminus, FullStory, Sonar Software and Sunday have laid off upward of 40% of staff as part of company restructurings.
Companies could also take a down round from existing investors, an investment at a lower valuation than the previous one. That can hurt a business by making existing investors’ equity in the business decrease, but is better than the alternative of shutting down, Morris, Manning and Martin Technology Attorney John Yates said.
Venture firms have gone into “assessment mode," Yates said. As the economy is impacted by rising interest rates, inflation and a potential recession, investors have become cautious to assess who they’ll invest in and their ability to support current investments.
As investors have switched a focus from growth to profitability, it has led company valuations to be reset. David Cummings told Atlanta Inno earlier this year they have gone down anywhere from 40% to 70%.
Companies don't tend to seek outside capital if their valuations decrease from when they previously raised money.
Countermoves
Atlanta entrepreneur Robert Burke, who’s been trying to raise capital for a conceptual startup since July, chose to restructure his business. That way, investors felt more shielded from his riskier ventures amidst a rough economic climate.
Since 2009, Burke has raised around $250,000 for his IT service company Sobo IT, and those investors have since been paid off. Earlier this year, he started trying to raise capital for his latest venture, a pre-revenue software startup called Sobo Platform.
To entice investors in a startup that isn’t profitable yet, he created a holding company and divided it into three assets. One being Sobo Advisors, an established business management consulting firm. Meanwhile, Sobo Platform will have time to prove itself.
