- Global venture funding fell to just under $70 billion in 2023, the lowest total since 2015.
- VCs got stuck with funds from 2021-2022 that still haven't returned money to backers.
- The exit valve stuck shut for years before easing in 2025, when IPO activity and secondary volume meaningfully increased.
- Capital is concentrated at the extreme top end, with mega-rounds, mostly AI, absorbing the majority of dollars.
- Founders are advised to build a diversified capital stack with three sources of capital that each do a different job.
- Profitability, or a credible path to default-alive status, makes the other two capital sources optional rather than mandatory.
- Equity is the most expensive capital, so it should fund specific needs like speed, market entry, or R&D, not general operations.
- A company that can survive on its own revenue negotiates from a position of choice, while one that runs out of cash negotiates from a position of need.
- Use equity for growth that requires speed, and use debt or revenue-based financing when you have predictable revenue or hard assets.
Venture capital is shifting from being the default financing option for startups due to higher interest rates, slower exits, and constrained VC funds. Founders are now advised to adopt a diversified capital stack, incorporating three distinct sources of funding to enhance stability and reduce reliance on favorable market conditions.4
The current landscape shows that global VC funding fell to just under $70 billion in 2023, marking the lowest total since 2015. This decline is attributed to several factors, including VC funds raised in 2021 and 2022 that have yet to return money to backers, and a prolonged drought in IPO activity and secondary volume.
Experts suggest that founders should diversify their funding sources to include equity, debt, and revenue-based financing. This approach allows startups to manage different incentives and market conditions effectively. Profitability is emphasized as a crucial element, serving as a financing instrument that provides flexibility and reduces dependency on external funding.679
As the market evolves, it is essential for startups to negotiate from a position of strength, leveraging their own revenue to dictate terms rather than being forced into unfavorable agreements due to cash constraints. Equity should be reserved for growth opportunities that necessitate speed, while other financing options can support operations once predictable revenue is established.
“Global venture funding fell to just under $70 billion in 2023, the lowest since 2015, as VCs got stuck with funds from 2021-2022. Capital is now concentrated in mega-rounds, mostly AI, leaving others to compete for a shrinking remainder.”
entrepreneur.com
