Global Startup Funding Dries Up: "Survive First Before You Grow"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] As technology stocks plummet and concerns about an economic recession grow, venture capitalists' (VC) investment sentiment has cooled sharply, drying up the funding sources for startups. Venture capitalists are repeatedly advising their portfolio startups to "focus on immediate survival rather than company growth."

According to market research firm CB Insights on the 29th (local time), global venture investment in the first quarter of this year was $142.4 billion (approximately 178.14 trillion KRW), down 20.7% from the previous quarter. It is forecasted that in the second quarter of this year, it will further decrease by 19% to $115.4 billion. By sector, investment in retail technology is expected to drop by 50% in the second quarter compared to the previous quarter, while fintech and digital health are projected to decline by 28% and 25%, respectively, according to CB Insights.

(Source = CB Insights)

The Wall Street Journal (WSJ) reported that as the situation worsened, senior members of well-known venture capital firms such as Lightspeed Venture Partners, Craft Ventures, Sequoia Capital, and Y Combinator have ordered urgent measures for startups within their portfolios this month. As part of these measures, they advised cutting costs, securing cash, and abandoning hopes of finding other investors.

Lightspeed, which supports social networking service (SNS) Snap and cryptocurrency exchange FTX, stated on the 17th, "The decade-long economic boom has clearly ended. The road ahead will be rough, and many CEOs will have to make painful decisions to keep their companies afloat amid turbulent waves," urging startups to prepare by reducing unnecessary activities to turn the crisis into an opportunity.

Sequoia Capital, a famous venture capital firm that made early investments in Apple and Airbnb, emphasized in a 52-page presentation to about 250 founders that the current situation is becoming similar to the 2008 global financial crisis or the 2000 dot-com bubble burst. They stressed the need to abandon expectations of a quick economic recovery, secure cash, and reduce expenses. Sequoia warned, "We do not expect a sharp adjustment like the V-shaped recovery witnessed at the start of the pandemic," and advised, "Use every dollar as if it were your last," and "Avoid the death spiral."

Y Combinator's Director Bikle Seibel also delivered a message to startups in a YouTube video released this month, stating that "you must survive before you grow." He emphasized the need to reduce headcount and advertising expenses while raising prices as a response.

Business Insider reported that some VCs prefer direct conversations with founders. Amar Andani, co-founder of Adapt VC, revealed that he is scheduling meetings over the coming months to discuss financial matters with portfolio companies, and Carter Lium, founder of M13 Ventures, is also communicating individually with companies.

This content was produced with the assistance of AI translation services.