When technology and biotech valuations began to tumble last year, U.S. Series B funding held up at first, offering one of the brighter areas in a more bearish investment environment.
That’s no longer the case.
In recent months, Series B funding to U.S. startups has fallen sharply. So far in 2023, investment is on track to come in at the lowest quarterly level in more than three years.
The continuing slowdown this year comes after dealmaking had already been contracting for a couple quarters. Per Crunchbase data, Series B investment in the second half of 2022 was down over 60% from the year-ago period.
For a sense of how far things have fallen, we chart out Series B deal counts and funding for the past nine quarters below.
Why Series B?
So why single out Series B for scrutiny?
We periodically look at Series B trends because this stage functions as a sort of proxy for the broader venture funding ecosystem: It’s typically the point in a startup’s lifecycle when it has proven technology or market traction and is on the cusp of major scaling.
So far in 2023, Crunchbase data shows investors are backing fewer big rounds. There were just six Series B deals of $100 million or more to date this year, an average of fewer than one per week. In 2022, by comparison, there were 90 such rounds, or almost two per week.
Some big deals getting done, led by biotech
Still, we are seeing some mega-sized Series B deals this year. Standouts include:
Notably, nine of the 10 largest Series B rounds this year have been for biotech companies. It’s not uncommon to see this sector lead the ranks, as scaling a biotech is an expensive undertaking.
Fintech, Web3, consumer see less traction
Also noteworthy is what we’re not seeing.
In particular, Series B investors are avoiding fintech. None of the 20 largest funding recipients this year were categorized as fintech companies by Crunchbase. This is striking considering it was the leading sector for venture investment in 2022.
It’s a difficult climate for setting fintech valuations, so this could be holding things up. Some of the highest valuation late-stage fintechs, including Stripe and Klarna, have sharply cut valuations. And FTX’s collapse has also played a role in quashing crypto dealmaking.
Web3 is also mostly absent from the top rankings. One exception was Miami-based blockchain development platform QuickNode, which closed a $60 million Series B funding led by 10T Holdings. Things have certainly slowed since Q1 of 2022, when there were multiple Web3 Series B rounds of $100 million and up.
Investment in consumer products has also nosedived in the past few quarters, and this is reflected in the Series B tallies. We didn’t see any consumer-facing deals among the largest rounds.
Funding totals at Series B are arguably a more telling measure of startup investor confidence than seed or late-stage financings.
At seed, investors often give little weight to market cycles, as they’re wagering smallish sums on longshots with far-off exit horizons. Late stage, meanwhile, tends to be influenced heavily by public market conditions, with big rounds piling up when large exits are prevalent.
Series B, by contrast, typically offers neither a moonshot multiple nor a fast path to IPO. With a median 2023 round size around $25 million, investors are putting significant capital to work at valuations well above where earlier rounds priced.
If funding is down at this stage, it likely means investors are wary of investing in today’s crop of mid-stage startups at prevailing valuations. Perhaps they’re taking a break to see how values settle in the coming months. Or perhaps it’s indicative of a deeper pessimism. Either way, we’ll keep watching these tallies to see in which direction we’re headed.
Illustration: Dom Guzman
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