2023 Year in Review

Looking back to the doom and gloom that was predicted for 2023, soft markets materialized, but most early predictions did not. Although 2023 was slower than 2022 in both the public and private markets, there were some big wins for alternative paths to capital formation, leading to acknowledgment from even Blackstone. 

‍

Venture Capital Retrospective

‍

Global VC fundraising continued to decline through the third quarter of the year. As of the third quarter of 2023, $117.3 billion of capital was raised across an estimated 955 funds, according to Pitchbook. It is likely that the annual fundraising figure for 2023 will hover around $150 billion, marking the lowest total for VC since 2015.

‍

Overall, private capital raised was down about 14%, with the number of funds raised only down about 2%. Despite industry-wide complaints about how tough the fundraising environment was, over 3,400 funds closed in 2023. Even in a tough environment, many funds managed to reach the finish line.

Capital allocations were limited, as many chose to wait out ‘unfavorable conditions’ and reserve funds for selected follow-ons. This resulted in record-high ‘dry powder’ in the system, at an estimated $659 billion.

‍

‍

Public Markets & Investor Sentiment

‍

Despite financial market volatility and inflation rates making major headlines, the US economy grew by 4.9% annualized¹. The largest component of the relatively strong US gross domestic product figure was consumer spending, and personal spending grew despite ultra-tight financial conditions. Consumer confidence trended higher but, according to the University of Michigan Consumer Confidence Index, remained historically low. Consumer confidence, despite being low on a historic basis, trended higher in the closing months of 2023. The pullback in inflation, as well as the Fed holding interest rates steady (or even reducing rates), should drive stronger consumer confidence in 2024. 

Optimism among individual investors about the short-term outlook for stocks rose to its highest level in nearly five months in the latest AAII Sentiment Survey (51.4%). Meanwhile, pessimism fell to its lowest level in almost six years. Bullish sentiment that stock prices will rise over the next six months drove investor sentiment indicators 4.0 percentage points higher to 51.3%. This is above its historical average of 37.5% for the sixth consecutive week.  

‍

“Despite continued volatility, public equity markets were stronger than widely expected over 2023, largely based on optimism that interest rates have now peaked and should actually fall in 2024. Investor sentiment seems to point to continued strength in 2024 in the absence of further geopolitical or economic turmoil.”

- Richard Heft, Co-founder and co-CEO, Ext. Marketing Inc.

‍

Private vs. Public

‍

Americans have benefited from private markets in recent years, as well as benefiting from diversifying beyond the traditional 60/40 portfolio split between public equity and fixed-income securities and into alternatives. IPOs were down in 2023, and despite rising significantly in 2023, equity markets experienced periods of volatility, particularly in response to concern over tight financial conditions, geopolitical tensions and expectations of lower disposable income stemming from still-elevated inflation. The number of IPOs launched in 2023 is expected to be the lowest it’s been since 2016.

‍

‍

Interestingly, public market volatility, in response to heightened uncertainty, along with the considerable costs associated with staying a public company and elevated interest rates, resulted in more take-privates than IPOs in 2023. Investors have seen the return potential of private markets and are acting accordingly, while business owners are keenly aware of this shift and are choosing to stay private. 

Despite the S&P 500 rising by over 20%, new IPOs in 2023 (which raised more than $500 million) have returned only 2.1%. Many IPOs that launched in 2020 and 2021 were trading below their IPO price at the end of 2023².

Regulation Crowdfunding

‍

Overall in 2023, capital commitments were up 9.7% from their 2022 figure, while the number of offerings was down 8.3%. This meant that fewer issuers raised more capital, while that trend also translated to investors.  On DealMaker alone, over $200 million was raised from over 50,000 investors in 2023. There were fewer total investors in private offerings for Reg A, Reg CF or Reg D raises; and those that did participate invested, on average, more than they did in 2022.

“2023 was predicted to be much worse than it actually was - capital commitments were up over 2022 and close to 2021, which was the best year for regulation crowdfunding to date.” 

-Woodie Neiss, Managing General Partner of Crowdfund Capital Advisors (CCA)

CCA data shows that offerings were down year-over-year for Reg CF, 1,456 in 2023 versus 1,588 in 2022. However, data indicates that both accredited and retail investor confidence was strong, with an all-time high in average check size in 2023.

‍

‍

On the DealMaker platform, we saw this as well. On average, our issuers raised more than they did in 2022. We had 30 issuers that raised over $1 million in 2023, with one deal raising $1 million in seven days, and another deal raising over $5 million in nine days! 

Similar to the macro-trend of larger check sizes, our average investment amount went up year-over-year by approximately 20%, from $2,722 to $3,416.

Although most analysts will focus on only Reg CF for their data - we offer many more deal types across North America for our Issuers. In 2023, Reg CF accounted for 31% of all of the total capital transacted through the system. That was up from just 7% in 2022, proving that more issuers are taking advantage of alternative paths to capital when institutional funding is not available.

‍

Industries That Stood Out 

In the public markets, information technology, communication services and consumer discretionary stocks posted big rebounds in 2023. So did growth stocks in general. Defensive sectors, including utilities, health care and consumer staples, were  laggards in 2023. Market strength in 2023 was buoyed by the “Magnificent 7” mega-capitalization tech stocks — Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Nvidia (NVDA), Meta Platforms (META), Microsoft (MSFT) and Tesla (TSLA). All seven stocks more than doubled the S&P 500’s gains in 2023.

In the private markets, we see a similar story playing out, with everything related to technology coming out on top: cleantech, healthtech, SaaS, AI, and robotics all had great success with raises and offers in 2023.

Specifically on the DealMaker platform, we see this trend as well - tech/robotics/SaaS and healthtech were the clear winners in successfully raising capital in 2023, with real estate, manufacturing, and cleantech/energy rounding out the top five.

‍

‍

2023 Key Takeaways

• IPOs dropped to record lows, with many companies choosing to stay private longer in response to volatile market conditions
• Investor sentiment was strong in 2023 despite market volatility. Both the Confidence Index and the average investment size supported a positive investor outlook
• Capital formation alternatives grew in popularity as pressure on institutional capital in 2023 put pressure on the system
• In 2023, the tech industry had the most focus from investors in the public and private markets, with cleantech and healthtech making big inroads

‍

2024 Looking Ahead…

• Tech and cleantech or clean energy are industries we’ve seen huge growth in, and are looking forward to that industry’s growth
• Spacetech and robotics are also winning the ‘cool factor’ in acquiring and building communities of capital support. We expect this trend to continue into 2024
• More brands are unlocking a multi-year raise strategy to scale and grow their business using TTW (Test The Waters) approach with Reg CF and then Reg A as a holistic approach over multiple years. This approach is giving founders ongoing access to capital in a consistent way, versus a “one and done” raise that needs to last two years  
• The Swiftie Playbook - as the approaches to building businesses change, more and more founders and brands are realizing the power of their fans, customers and shareholders in bolstering the strength and longevity of their brand. Investor and customer relations are always a priority for those who do it right

‍

__________________________

¹ Third quarter of 2023.

² Weak returns from 2023 IPOs still beat pandemic-era debutants, bloomberg.com, December 2023.

All dollars are USD.

‍

Contributors: EXT Marketing

Crowdfund Capital Advisors

‍