A slowdown in venture capital deals, fundraising and startup exit activity persisted in the U.S. and Arizona during the fourth quarter, underscoring a changing market that responded to economic headwinds and ongoing political geopolitical tensions in 2023.
Still, the drop in venture capital activity is far from a crisis, according to the latest Venture Monitor report from Pitchbook and the National Venture Capital Association. The report predicts a somewhat subdued outlook for venture capital in 2024, claiming a rebound in fundraising is unlikely given the returns of the past couple of years. However, the market remains full of dry powder and companies with strong financials are likely to continue receiving investments.
"Economic signals point to lessening of the uncertainty throughout the year, which should at least help venture find a balance for a new normal," Pitchbook wrote in the report.
Despite the slowdown in 2023, investors continued to pour capital into Arizona-based startups, which raised a total of $1.26 billion across 139 deals last year. But statewide funding totals in the fourth quarter were sliced nearly in half from the fourth quarter of 2022.
In the fourth quarter, Arizona companies inked 31 deals totaling $232.5 million, compared to 39 deals and $458.2 million raised in the fourth quarter of 2022, according to the report. Phoenix-area startups secured 25 deals totaling $223.4 million in the fourth quarter, compared to 33 deals totaling $441.9 million in the same time period last year.
The drop in year-over-year funding continued the statewide trends from the third quarter, when Arizona companies inked 36 deals totaling $182.8 million — compared to 45 deals and $281.4 million in third quarter of 2022.
Companies in the information technology, transportation, clean energy, and health and financial technology sectors were among the state’s top investments in the fourth quarter.
Pitchbook reported in its Q4 data that Mangata Networks, a Phoenix-based telecommunications company specializing in satellite and wired communications services, raised the greatest amount of capital among Arizona companies in a $115 million deal. It’s important to point out, however, Pitchbook data shows the deal consists of equity and debt financing, and does not indicate whether the investment involved private equity firms.
Mangata told the Phoenix Business Journal on Jan. 10 it’s in the process of raising a deal greater than $100 million but has not yet closed the round.
Other notable Phoenix-area deals in Q4 include:
- $19.7 million in a series A round for Gilbert-based financial technology startup PayGround
- $16 million in a series A round for Gilbert-based startup Nx
- $12 million in a series A deal for Phoenix-based transportation technology company RunBuggy
- $5.75 million in a seed deal for Scottsdale-based AI-powered conversational intelligence company Peerlogic
Q4 nationwide deal value falls to lowest figure since 2019
In the fourth quarter, startups nationwide raised $37.5 billion across 2,879 deals, compared to $39.8 billion in the fourth quarter of 2022. In 2023, total deal value was $170.6 billion, down from $242.2 billion in 2022, marking the lowest figure since $149.4 million in 2019, Pitchbook data shows.
A backlog of initial public offerings continued to grow, and just eight companies completed an IPO in Q4. Some 723 "unicorn" companies hold the vast majority of returns for the market and they have balked at listing in the current environment, according to Pitchbook.
Decreased funding numbers spanned the VC ecosystem last year.
Pitchbook reported 116 late-stage mega-rounds above $100 million nationwide in 2023, compared to 241 in 2022. Venture capital firms nationwide raised $66.9 billion in 2023, almost half of the $172.8 billion raised in 2022. And early-stage deal value for startups reached $39.5 billion in 2023 across 5,421 deals, compared to $70 billion in 2022.
Investors deployed $2.8 billion in pre-seed and seed capital across 1,176 deals nationwide in the fourth quarter.
Despite the pullback in activity, the venture capital ecosystem is well-capitalized and additional sources of liquidity from the CHIPS Act could serve as catalysts for “unprecedented innovation." What’s more, advances in artificial intelligence, life sciences and clean technology are attracting significant levels of public and private investment, Pitchbook said.
"Furthermore, a tremendous need exists for new capacity in fields like manufacturing and materials processing to de-risk existing supply chains and power the green transition," Pitchbook wrote. "The world has changed, and it is up to America’s VC community to make sure those changes leave the world better off."
