Late-stage startups are facing a challenging funding landscape as venture capital becomes increasingly scarce. Raising funding is taking longer, and the bar for securing a deal is set quite high. This comes at a time when startups are already grappling with the effects of a difficult year and struggling to raise capital.
According to recent data from equity ownership platform Carta, the time between funding rounds for startups is getting longer. For startups that raised a Series C in the third quarter of 2023, the average time since their last Series B round was three years. The average time from a seed round to a Series A was just over two years, although this wait was shorter earlier in the year.
Many of these startups last raised capital around mid-2020, as the venture capital industry was recovering from the pandemic’s impact on the markets. Others were fortunate enough to raise funds during the funding boom of 2021 and early 2022. However, the longer wait times between funding rounds shouldn’t come as a surprise, given that VC funding this year has been at its lowest since 2018.
In the third quarter of 2023, funding in the US and Canada amounted to $36.7 billion, the lowest quarterly total raised in over five years, according to PitchBook data. The number of deals done in the third quarter remained relatively flat compared to the second quarter, and analysts predict that the market won’t see much change in the fourth quarter.
These challenging conditions mean that venture capitalists will likely continue to be cautious with their capital. This leaves approximately 51,000 startups in search of funding, creating a fierce competition for limited VC resources. PitchBook analysts emphasize that available capital will remain low until an exit market resurfaces, providing opportunities for startups and their investors.
The situation is particularly precarious for late-stage startups, as more venture capitalists are becoming hesitant to write large checks. For those fortunate enough to secure funding, the expectations and standards are high. However, for companies that are not performing well, the road ahead could be very difficult.
The impact of this capital strain is already being felt, with startups facing an increasing risk of extinction. One startup per week is reportedly shutting down, illustrating the challenges faced by these companies. Recent examples include Olive AI, a healthcare-focused AI startup valued at $4 billion, which announced the sale of its core business units and subsequent shutdown. Convoy, a digital freight startup that raised $1.1 billion from high-profile investors, also shut down and sold its technology to competitor Flexport.
Convoy’s CEO, Dan Lewis, described the current market conditions as a “perfect storm” that contributed to the company’s failure. He pointed to a combination of factors, including a collapse in the freight market and a decrease in investment appetite for unprofitable late-stage private companies.
The demise of Olive AI and Convoy may be just the beginning of a wave of late-stage startups facing a similar fate. These highly valued and well-capitalized companies serve as early indicators of the challenges that lie ahead for others in the late-stage ecosystem. As funding becomes increasingly scarce and expectations continue to rise, startups must navigate a highly competitive landscape to secure the capital they need to survive and thrive.
I have over 10 years of experience in the cryptocurrency industry and I have been on the list of the top authors on LinkedIn for the past 5 years.