The Venture Capital Winter Continues

There was a significant decrease in sovereign wealth fund direct investments in startups in 2023, with only 31 participations in venture capital rounds of equity raise, compared to 97 deals completed in 2022. This decline reflects a broader global trend, as 2023 was a challenging year for VC investment worldwide due to geo-economic challenges and concerns about the valuations of VC-backed companies.

Most notably, in 2023, sovereign wealth fund direct investments in startups witnessed a steep decline, with only 31 participations in venture capital (VC) rounds of equity raise, which is less than a third compared to the 97 deals completed in 2022.

This trend may simply mirror the global landscape: 2023 proved to be a particularly challenging year for VC investment worldwide due to significant geo-economic challenges and persistent concerns regarding the valuations of VC-backed companies. According to consultancy KPMG, annual global VC investment ($74.9 billion) and the total number of VC deals (7,572) globally fell to levels not seen since 2019 as VC investors exercised caution in their dealmaking activities.

Source: IFSWF Database, as of 10/04/2024.

As shown in the previous years of data and from research by IFSWF and PwC in 2021, sovereign wealth funds still favour growth capital when they invest in private markets. In 2023, it represented over 40% of direct investments in startups.

Although sovereign wealth funds invested slightly more in 2023 ($3.2 billion) than in 2022 ($2.5 billion), this increase was primarily driven by investments in just one company at the pre-IPO stage: the e-commerce payment processor Stripe. Singaporean state-owned investors, GIC and Temasek Holdings participated in Stripe's $6.5 billion Series I fundraising round, at which the valuation was half that of its peak in 2021. This investment highlights how sovereign wealth funds' approach to investing in startups in 2023 was opportunistic. In this case, it was the result of a low valuation for one of the world’s leaders in the payment infrastructure for the Internet.