PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Venture Capital Funding Declined in 2022 and 2023

By at 8 February, 2024, 2:18 pm

by Raymond J. Keating –

If you want robust entrepreneurship, innovation and growth, then investors must be incentivized to take on the risks and uncertainties of investing in new and growing businesses. It’s as simple as that.

According to the latest edition of the Venture Monitor, from the National Venture Capital Association, investment in entrepreneurial ventures have taken a big hit over the past two years.

As noted in the following chart from the NVCA report, venture capital, in terms of value and the number of deals, declined over 2022 and 2023.

As for investment at early stages of business development:

• “In 2023, the combined deal value of pre-seed and seed experienced a sharp YoY decline, slipping from $24.2 billion to $14.6 billion.”

• “On an annual basis, early-stage deal value notched $39.5 billion in 2023, surfacing a 43.5% decline from 2022 and falling below the 2018 level.”

While assorted factors have come into play regarding these declines, political factors cannot be ignored.

First, there are international political points, such as the ongoing Russian war on Ukraine, the Israeli response to terrorists, spreading concerns in the Middle East, and challenges regarding China. In fact, Bobby Franklin, president and CEO of the NVCA, observed, “Russia’s invasion of Ukraine, an increasingly challenging business environment in China, and renewed conflict in the Middle East have forced dramatic reassessments of how investors make the most of their access to human, financial, and natural capital.”

Second, there are increased risks and uncertainties in the U.S. given regulatory activism that are undermining intellectual property protections, and threatening M&A activity. Again, the NVCA noted, for example, “In December 2023, the Biden administration issued a draft framework for Department of Commerce (DOC) to more broadly utilize ‘march-in rights,’ which reviews the factors that an agency may consider when exercising march-in rights on patents.” (See this SBE Council analysis, for example.)

If the Biden administration, regulators and many in Congress are looking to undermine investment in entrepreneurial ventures, then this kind of over-regulation is just the way to do it.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.

 

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