Rising interest rates are taking a toll on companies’ access to investor capital.
Venture capital transactions within the workforce solutions ecosystem plunged 60% during the first half of 2023 compared to the same period last year, according to SIA’s recently released study, Venture Capital Activity in the Workforce Solutions Ecosystem. This year is on track to be the slowest for VC activity since 2013, the study shows.
Monthly data shows a similarly grim picture. The number of deals slid every month beginning in March, with only 14 transactions recorded in June, according to the study. SIA noted that this number could have been even lower if not for the recent surge of interest in AI-related businesses.
“The drop-off in 2023 activity is largely tied to the rising interest rate environment and reduced investor appetite for risk,” Brian Wallins, SIA research director, said in an email. “This is reflected not only in how many deals are getting done but the valuations investors are willing to pay.”
Venture capital raised by workforce solutions startups during the first half of 2023 plummeted by 74% year over year, a considerably steeper decline than the 51% loss experienced by startups across all industries, a study by Crunchbase found.
The step back is almost entirely attributable to macro headwinds as opposed to specific challenges within the industry, Wallins noted.
Workforce solutions startups accounted for 1.4% of the global venture capital in the first half of 2023, a decline from the peak of 2.9% observed in 2021 but still higher than the levels recorded prior to 2018.
“There has been a drop-off in the share of workforce solutions deals in the first half of 2023, but it’s too early to say whether those effects will be fleeting or if those six months were merely a blip,” said Wallins, who co-authored the report with SIA Research Analyst Kevin Chen.
Additionally, the study found that early-stage deals (pre-seed, seed and series A) account for 81% of all capital deals identified since 2008, with more than half, 55%, falling into the seed stage category.
The share of funding rounds in the Americas has decreased to 55% from 68% in 2008 as investors increasingly seek opportunities in the APAC and EMEA regions, according to the study. Between 2008 and 2022, the number of funding rounds consistently increased each year by an average of 27% in the APAC region, 16% in EMEA and 13% in the Americas.
-Henry Liu, Staffing Industry Analysts