Top VC Trends for Q3 2023

Venture capitalists from around the world have a cautious and yet positive outlook for 2023.

Based on recent survey results from emerging managers worldwide, several trends are shaping the venture capital landscape for Q3 2023. We’ve analyzed the top five trends, interpreting the sentiments behind these changes.

Over half of the votes (53.6%) lean towards a positive outlook on the VC landscape, underscoring a generally optimistic sentiment among emerging managers worldwide. This is echoed by a rise in limited partner funding of venture capital in June according to VC Lab data. In contrast, the neutral and negative sentiments account for a smaller portion of the votes, 26.2% and 20.3% respectively.

The relatively high percentage of neutral votes suggests a cautious yet open stance towards the market dynamics, with a measured pace of investment and valuation adjustments being key themes. The smaller proportion of negative votes indicates that despite certain challenges and potential headwinds, such as the economic slowdown and decreased IPO activity, the overall sentiment towards venture capital trends remains resilient and mainly optimistic.

Here are the top five trends along with a couple of sentences describing each and analyzing the sentiments associated with them:

  • 1. Growth in AI and Ethical AI (Positive sentiment, 13.9%): Artificial Intelligence (AI) continues to garner attention in the VC space. But beyond just investing in AI, there’s an increasing interest in ethical AI – platforms that are not only intelligent but also respectful of privacy, security, and societal values. This sentiment reflects the ongoing shift in investor perspective to prioritize technologies that can strike a balance between innovative functionality and ethical considerations.
  • 2. Lower Valuations (Neutral sentiment, 10.3%): Lower valuations are an emerging trend, often viewed as a double-edged sword in the VC world. On the one hand, these decreased valuations might be a sign of increasing caution in the venture space, as investors become more discerning in their allocation of capital. On the other hand, this could potentially be good news for venture capitalists seeking deals at less inflated prices, indicating an increased emphasis on sustainable growth and realistic pricing.
  • 3. Slower Investment Pace (Neutral sentiment, 7.1%): As the venture capital market matures, there seems to be a trend towards a more measured pace of investment. This slower rhythm suggests that VC firms are taking more time to conduct due diligence and thoroughly assess potential investments. The sentiment around this trend is neutral, as it can be interpreted as a move towards a more sustainable and cautious investment approach.
  • 4. More VC Firms (Positive sentiment, 5.6%): The venture capital industry is experiencing an influx of new firms. This trend indicates a healthy market dynamic, as more players increase competition and diversify investment options. However, for startups, this could mean having to navigate a more complex landscape of potential funding sources.
  • 5. More Bridge Rounds (Neutral sentiment, 5.6%): The increase in bridge funding rounds suggests that startups may be staying private for longer periods before taking the plunge to go public or seek an acquisition. This trend underscores a more cautious and patient approach to scaling businesses, which is in alignment with the slower investment pace trend.
Top VC Trends for Q3 2023 4
Decile Network Purple Divider5
Top VC Trends for Q3 2023 5

Overall, the Q3 2023 trends reveal a venture capital landscape that is increasingly focusing on sustainability, ethics, and cautious growth. Despite the slower pace and lower valuations, the rising interest in AI and Ethical AI, alongside the increase in VC firms, suggests a market that continues to adapt and innovate. The key takeaway is that VC firms and their portfolio companies are becoming more patient, diligent, and ethically conscious, a trend that could foster a more resilient and sustainable VC ecosystem moving forward.

Venture Trends on June 21st

Join us on June 21st to unpack these trends with general partners and limited partners from around the world.