At $445bn, venture capital funding in 2022 was nearly $100bn higher than in 2020, according to Crunchbase data. Compared to the buoyant levels of 2021, overall funding was of course much lower — to the tune of $236bn — yet as Crunchbase's Gené Teare notes, $445bn doesn't look quite so bad in view of the sheer scale of 2022’s myriad challenges. The risks remain very high as we begin 2023 and the threats facing many startups — as well as established businesses — will be significant. And yet the dislocations produced by these conditions offer many, many opportunities as well.

Despite falling investment, VC firms continued to raise record levels of funds last year, amassing as much as $580bn of dry powder. Investors are likely to take a cautious tack in 2023, with investment unlikely to match the pace seen in 2021, when levels of undeployed funds were similar. Though the last quarter of 2022 saw a particularly sharp fall in VC funding, the new year has brought some more positive signals on the macro front, with global markets rising around 4% during the first three weeks. Moreover, the FT noted a relatively sanguine atmosphere at Davos on January 20, highlighting three positive signs for the year ahead: firstly, China's abandonment of its 'zero-Covid' policy; secondly, a significant fall in natural gas prices; and thirdly, support for North America from the US’s Inflation Reduction Act.

VC investment in certain key tech sectors could hit new highs in 2023, according to Pitchbook. It expects this year to bring record levels of funding for agtech, e-commerce, foodtech, and climate tech, with the latter benefiting from the Inflation Reduction Act. Conversely, the prospects look weaker for insurtech and the internet of things. Pitchbook expects investment to slip to a five-year low in insurtech and back below 2020 levels in the internet of things. The picture for crypto is seen as being more mixed with funding bottoming out during the first half of 2023 before rising later in the year. Higher rates of consolidation are expected in mobility tech and retail fintech.

Moreover the outlook isn't all bad for US VC, with seed-stage startup valuations and deal sizes expected to grow to new annual highs, despite a slackening in total deal value and count, according to Pitchbook. Although the Morningstar PitchBook US Unicorn Index is expected to decline this year, it managed a 1% rise last year from the dizzying heights of 2021. Series C and D are currently the hungriest stages for capital and expected to see the most down rounds. Less positively, US 'mega-round' activity (defined as rounds over $100mn) will fall to a three-year low of below 400 deals. In 2021, there were 836 such deals.

While European VC also faces an uncertain year ahead, early-stage firms in the region could see more capital as investors take a more cautious approach to the late stage, according to industry insiders quoted by Pitchbook. Europe saw its second best year ever in terms of both deal value and count, despite an overall VC funding slump of 18.6% to $86bn as of mid-December, while the number of deals dropped 14.3% to 9,921.