VC Funds Drop, Hedge Funds Rise

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Venture capital (VC) funding plummeted across the US and Europe in 2023.

According to data analytics company GlobalData, the VC funding deal value in the US plunged 45.6% to $109.4 billion last year. One year earlier, more than 11,600 deals were announced, with a value of $201.2 billion.

Europe followed the same trend. The annual State of European Tech report, produced by the London-based VC firm Atomico, showed a sharp decline in tech funding, from $82 billion in 2022 to $45 billion in 2023.

Indeed, “The projected volume of total investment in 2023 is expected to equal less than half of the investment seen in the peak year of 2021, across every global region,” states the Atomico report.

Many factors explain the decline: inflation, interest rate growth and geopolitical tensions. Fortunately, the success of OpenAI’s ChatGPT swayed VC funds to loosen purse strings.

As a result, artificial intelligence (AI) startups captured almost one-third of the total dollars invested in technology in the US last year.

OpenAI, Anthropic, Stripe and Inflection AI all secured billions in 2023. Grocery delivery offerings and audacious consumer concepts were less in demand. Startup CEOs had to downplay their expectations. Some of them lowered valuations to raise funding.

Only 8% did so in 2022, but many more (20%) reset their valuation in 2023, according to PitchBook data. Rising interest rates obliged startups to adjust to more-realistic forecasts.

Ironically, VC-backed organizations faced more headwinds than did hedge funds. Their bets on stock markets paid off when share prices benefited from an upswing. Big bets on natural disaster bonds also brought success. The world’s 20 leading hedge funds raked in $67 billion in profits, according to LCH Investments. In fact, 2023 was a record year for hedge funds, while VC returns last year entered negative territory. Nevertheless, what matters in the VC world is long-term perspective.



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