Funding is not the Biggest Startup Problem
The year 2021 will be remembered as a record breaking year for the world of startups and venture capital. The total amount of venture investment raised was $643 billion, nearly doubling the amount of funding raised the year prior. To put this in perspective, there was 10x the capital deployed last year than in 2012.
The glut of capital and a lack of places to put it has led to a massive inflow of cash into funds investing into startups. In the US alone, VC funds raised a record $128.3 billion across 730 funds in 2021, a 47.5% increase compared with the previous record of $86.9 billion in 2020.
This has in turn created a startup flywheel where valuations and startup creation are at all time highs. Based on Crunchbase data, unicorns (startups valued at $1 billion-plus) were being minted at an average of more than 10 per week in 2021. As of this month, there are over 1,000 unicorns globally, you can view the entire list of unicorns here.
While the economic outlook for this year and next is pointing towards a significant downturn, VC funding is still active. Many have noted the dip in global startup funding from last year, yet funding for Q1 of this year was still 7 percent higher year-over-year when compared to Q1 of 2021.
What is happening is that inflation fears and public market pullbacks have stifled late-stage funding. For seed stage companies however, they are as flush as ever with funding. How is that? The late-stage funds are getting into early stage, pouring into seed and series A rounds. Basically they are seeding low-dollar deal flow now to prepare for larger return 5–7 years out. While the more mature startups are paring costs and staff, the early stage startups are all cylinders go.
When I jumped into startups, it was during the financial crisis of 2008. When talking about downturns, that was the real deal. Everyone was scared. Nearly all startup fund raising stopped, as we wondered if there would even be an economy by the end of the year. Fortunately the…