The downtown Denver skyline at sunrise. (Courtesy Guerilla Capturing)
This year was a strange market for startup funding, even in the Centennial state known for its robust startup community.
Peter Adams
After funding briefly dried up because of COVID-19, money flooded the market in 2021. Peter Adams, interim executive director and board member at Rockies Venture Club, said the drastic influx of cash led to a slowdown in 2022, which carried over into 2023.
Through the end of November, Colorado-based startups had raised $4.5 billion, according to SEC filings, compared to $4.7 billion in the 2022 calendar year.
“It is a tough environment and it looks like it did back in 2008 when there was huge uncertainty and angel investing dried up,” Adams said.
Chris Erickson, founder of venture capital firm Range Ventures, which invests in early-stage tech startups, said he thinks most anticipated the slowdown.
“We saw funding decrease then and I think the expectation was funding for most, if not all of 2023, was going to be materially down from the peaks we saw in 2021,” Erickson said.
Chris Erickson
But, despite that, there were still deals to be done. Adams and Erickson said founders just had to work twice as hard to secure investments.
Erickson said founders that successfully raised money in 2023 had a more-developed company, were cash-efficient and “in it for the long haul.” He said Range invested a total of $5.3 million in six new startups, which is typical for the 3-year-old firm.
Alex Houghtalin, principal at Access Venture Partners, which invests in software startups, agreed and said the group’s portfolio startups were “very conservative” this year.
She said in general, Access saw more startups in early seed stages and seed extensions, rather than Series A. And while funding overall seemed slow, Houghtalin pointed out that some industries, like AI, exploded.
Access pivoted this year to invest in startups outside of the state, but the majority of its deals are still in Colorado. Houghtalin said the 24-year-old firm invested in 10 startups, three of which were new. That’s only one less than last year.
Peter Adams with RVC said the firm invested in 12 startups from January to October, about 17 less than last year. The majority of those were companies already in the group’s portfolio, whereas it’s usually split evenly between portfolio and new companies.
Adams attributed the drop in funding this year to three major things: high interest rates, institutions restructuring investment portfolios and a dry IPO (initial public offering) market, which made deals take longer.
Erickson said that investors could also do more due diligence before deciding what startups to invest in because the market was slow, which translates to fewer deals closing by year-end.
“Power and negotiation leverage shifted somewhat back to the investor,” Houghtalin added.
Alex Houghtalin
While Erickson said he’s anticipating a slow start to 2024, Houghtalin said she’s optimistic.
“There’s some positive indicators that the economy is strong and that … we’ll start to see a higher velocity of companies coming out for a real true strong Series A,” she said. “I think that’s what the market really needs. There’s still a lot of money out there that needs to be deployed.”
Adams also thinks people will feel less uncertain next year, especially after the Federal Reserve kept interest rates steady this month and indicated decreases are likely in 2024.
“We’ve got record low unemployment, inflation has come back down, GDP growth is happening – but people’s psychology hasn’t caught back up to that,” he said. “Finance is very much about psychology as much as it is dollars and cents.”
The downtown Denver skyline at sunrise. (Courtesy Guerilla Capturing)
This year was a strange market for startup funding, even in the Centennial state known for its robust startup community.
Peter Adams
After funding briefly dried up because of COVID-19, money flooded the market in 2021. Peter Adams, interim executive director and board member at Rockies Venture Club, said the drastic influx of cash led to a slowdown in 2022, which carried over into 2023.
Through the end of November, Colorado-based startups had raised $4.5 billion, according to SEC filings, compared to $4.7 billion in the 2022 calendar year.
“It is a tough environment and it looks like it did back in 2008 when there was huge uncertainty and angel investing dried up,” Adams said.
Chris Erickson, founder of venture capital firm Range Ventures, which invests in early-stage tech startups, said he thinks most anticipated the slowdown.
“We saw funding decrease then and I think the expectation was funding for most, if not all of 2023, was going to be materially down from the peaks we saw in 2021,” Erickson said.
Chris Erickson
But, despite that, there were still deals to be done. Adams and Erickson said founders just had to work twice as hard to secure investments.
Erickson said founders that successfully raised money in 2023 had a more-developed company, were cash-efficient and “in it for the long haul.” He said Range invested a total of $5.3 million in six new startups, which is typical for the 3-year-old firm.
Alex Houghtalin, principal at Access Venture Partners, which invests in software startups, agreed and said the group’s portfolio startups were “very conservative” this year.
She said in general, Access saw more startups in early seed stages and seed extensions, rather than Series A. And while funding overall seemed slow, Houghtalin pointed out that some industries, like AI, exploded.
Access pivoted this year to invest in startups outside of the state, but the majority of its deals are still in Colorado. Houghtalin said the 24-year-old firm invested in 10 startups, three of which were new. That’s only one less than last year.
Peter Adams with RVC said the firm invested in 12 startups from January to October, about 17 less than last year. The majority of those were companies already in the group’s portfolio, whereas it’s usually split evenly between portfolio and new companies.
Adams attributed the drop in funding this year to three major things: high interest rates, institutions restructuring investment portfolios and a dry IPO (initial public offering) market, which made deals take longer.
Erickson said that investors could also do more due diligence before deciding what startups to invest in because the market was slow, which translates to fewer deals closing by year-end.
“Power and negotiation leverage shifted somewhat back to the investor,” Houghtalin added.
Alex Houghtalin
While Erickson said he’s anticipating a slow start to 2024, Houghtalin said she’s optimistic.
“There’s some positive indicators that the economy is strong and that … we’ll start to see a higher velocity of companies coming out for a real true strong Series A,” she said. “I think that’s what the market really needs. There’s still a lot of money out there that needs to be deployed.”
Adams also thinks people will feel less uncertain next year, especially after the Federal Reserve kept interest rates steady this month and indicated decreases are likely in 2024.
“We’ve got record low unemployment, inflation has come back down, GDP growth is happening – but people’s psychology hasn’t caught back up to that,” he said. “Finance is very much about psychology as much as it is dollars and cents.”
