Startups raised $285 billion in 2023

This week we break down the process of startup funding and how VCs choose their investments.

In today’s insights 🔍 

• Challenges of VC Funding
• What VCs look for (A16Z)
• The failure rate of startups
• A diversified approach to funding

Read Time: 2.5 minutes

A total of $285bn was invested in startups globally in 2023, creating 46 new startup unicorns. So, how do successful startups approach funding?

The challenges of VC investment 🧩

A European VC receives an average of 851 startup pitches a year, but only 6% of these receive funding.

With data from close to 900 European VC firms, they meet an average of 37% of the pitch proposals, 12% go through due diligence, 8% are handed a term sheet offer and only 6% receive a funding commitment.

The key difficulties of receiving a VC investment are the highly selective nature of these funds in addition to a hesitation towards early-stage deals.

Weekly Startups News 🧑‍💻

Geneva-based Hive raises Series A round
Swiss startup Hive has raised a €12 million Series A round to increase access to sustainable, high-powered computing resources for businesses and individuals.

London-based Oriole Networks raised £10m seed
Breakthrough startup could help train AI 100 times faster while cutting energy use to only 2-3% of the traditional system.

The largest Pre-Seed raised by female founders.
Belong raised a £2.95 million round, aiming to make wealth-building accessible to a wider demographic, focusing on professionally-employed millennials.

Startup feature
How A16Z decides on startup investments

Andreessen Horowitz (a16z) is one of the most recognizable VC firms in Silicon Valley, founded in 2009 by Marc Andreessen and Ben Horowitz.

The firm manages a $35 billion portfolio of startups and is known for its successful track record of startup investments such as Lyft, Instagram, Slack, Coinbase and Airbnb.

A16Z looks at over 2,355 deals a year but invests in less than 50. Here is what they look for:

Investment Strategy: Backing big, crazy ideas

Market Disruption: focused on high-growth markets for startups that address new opportunities with a clear runway to scale.

The Team: ‘Investing in great teams, over great ideas’ focuses on targeting investment to second-time founders with expertise.

Portfolio Alignment & PMF: the A16Z funds are sector-specific and value product-market-fit criteria that highlight the adoption and interest of the solution provided.

Their investments target high-potential, high-risk ventures, betting on a handful of potential unicorns that offset other startup failures.

The failure rate of startups ⏳ 

Across data for 5,417 startups, only 14% progress from the seed stage to series A. This emphasizes the challenges of early-stage funding for startups.

This is especially true for European startups, where a highly fragmented market limits the reach of large VC & institutional investors.

A diversified approach to funding 🌱

In Europe, government agencies lead startup funding at 24% of the total investments, followed closely by angel investors and family offices at 19%.

This showcases the diversified investment pool for startups seeking alternative funding sources beyond the highly selective VC & corporate investors.

Our 2023 Startup Analysis

In Q3 2023, we unpacked the European startup investment trends, noting a downturn amidst economic challenges.

If you haven’t yet, now’s the time to catch up on our insights before we release our comprehensive 2023 recap report.

SearchVentures Insights

Our guide to startup funding highlights the difficulties of a reliance on VC funding for early-stage startups. With a diverse investor market in Europe, alternative funding sources such as angel investors & government backing through grants and initiatives provide an alternative approach to investment.

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See you next week

Cheers,

Odin Lund & Hariprasad Mohandas