2023 Venture Capital Trends: The Rise of High-Value Deals and Atlanta's Growing Influence

Across the globe, vexing challenges exist. And everywhere vexing challenges exist, visionary innovators build businesses to solve them. And wherever those great innovators are, you see inspired people seeking to invest in the promise of progress. It’s a virtuous cycle with vision and aspiration at its center and hard work and funding propelling its momentum.  

Of course, not all innovation markets are the same. Resources, cultural norms, specific challenges and opportunities, and even adherence to the status quo shape innovation markets. Macroeconomic factors, geopolitics, and other contextual factors also determine what and who gets funded, how hard (or easy) it is to secure capital, and what to expect from investments.  

By comparing global, national, regional, and state-level investment and startup trends for YTD 2023, we see an interesting trend – the number of venture capital deals is down, but the median value of deals is up. Among the many implications is one central assumption: securing private capital has become more difficult. Support is directed to excellent businesses in proven sectors where real-world problems are being addressed and solved.  

Deal Counts Keep Going Down. Deal Dollars Are on the Rise.

Globally, Q3 venture deal volume has dropped consistently. The 6,111 global deals in Q3’23 represent an 11% QoQ drop in the volume of VC deals – the sixth quarter of ongoing decline and the lowest level since 2016.  

The news isn’t necessarily bad. Deal sizes grew at the same rate that the volume dropped. In Q3 2023, total dollars invested reached $64.6B - an 11% increase from Q2 2023, continuing a global upswing that started at the start of the year. Nearly half of that Q3 funding amount came from Mega rounds ($100M+). Larger, presumably more high-quality deals are being made.  

Funding for U.S.-based companies, which constituted 50% of global funding in Q3, reached $32B invested across 2,209 deals. That balance of the total number of deals and the size of funding have held relatively steady across the U.S. In 2022, U.S. deals constituted 47% of global value and 37% of the total deal counts. Mirroring the global trends, the number of Mega rounds in the U.S. has been on a slight but steady increase (Q1=48, Q2=58, Q3=65).  

Narrowing the View: Where the Southeast Stacks Up

Narrowing our purview, we see that the Southeast U.S. region is generally holding steady. The region accounts for approximately 13.6% of all U.S. VC deals – despite not being ‘home’ to one of the traditionally major VC/innovation markets (Silicon Valley, New York, Boston).

Generally, the Southeast VC funding environment has less momentum and smaller average deal sizes than the major innovation markets. Still, it shows more stability than those regions. Dollar amounts have kept up, but average dollars per deal are lower, and fewer Mega deals are happening in the region. While it follows the same general deal patterns, the peaks and valleys are more muted, positioning the Southeast as a more stable innovation economy than much of the U.S. During the quarter following a high in the past year, major innovation markets declined on average at 167%, compared to 83% in the Southeast.

One explanation for stability in the Southeast is that investment and startup activities lag about a quarter behind the other major Innovation markets. That buffer allows investors and founders to observe trends and make more informed decisions.    

With a healthy startup environment and a more stable investment culture, the increase in VC deals in the Southeast is a positive sign for the U.S. economy. Add to those factors a lower average cost of living in many of the key Southeast metro areas, high educational attainment, a maturing entrepreneurial culture, and concerted efforts by regional economic development teams to attract and keep new companies. There is great potential in the region to continue its rising influence. ‍

Atlanta is a Gem Among Gems

In July, we shared three reasons Atlanta has become a top region to build a business – access to well-developed technology talent, experienced corporate and entrepreneurial leaders, and a lower cost of living than many other major metro areas. None of those factors have changed – in fact, they have become more meaningful. New LinkedIn data reports that with 92% year-over-year growth in the number of people founding companies in the city, Atlanta is now the top spot among all U.S. metro areas for startups. Not surprisingly, it’s prompted blisteringly fast growth.  

The Innovation market spotlights in the Q3 2023 CB Insights State of Venture Report show that funding and deals in Atlanta have rebounded materially. For comparison, Silicon Valley, New York, and Boston continue to experience declining VC funding amounts and deal counts.  

Asking why Atlanta has become a flourishing Innovation economy takes us back to the virtuous cycle described at the start of this article.  

The VC investment and startup ecosystem in Atlanta is exceptionally supportive. Funders here actively seek to support true entrepreneurs (not wantrepreneurs) through their entire startup journey. Many entrepreneurs working in the city have been successful more than once, building generational strength into the founder community. Together, these forces are powering an Innovation Economy flywheel. But progress from both sides demands resources. Fortunately, Atlanta also leads in access to the most essential resource: education.  

There is a well-documented connection between higher levels of education and higher salaries in the U.S. Cities with established university systems and high graduate numbers tend to produce larger rates of innovation and tax revenue. As more companies launch, grow, and move to these cities, so do educated workers. This cycle increases the population density of highly educated individuals.  

Atlanta is one such city. With leading colleges (e.g., Emory University, Georgia Institute of Technology, Georgia State University), the city has earned the ranking of the second most educated city (behind Arlington, VA) in the U.S. Nearly 60% of residents hold a bachelor’s degree and more than 25% have a graduate degree. That access to talent, startup-friendly building environment, and comparatively measured and healthy VC investment culture positions Atlanta – not just within the U.S. but among the top markets worldwide – as a powerful force in the Innovation economy.  ‍

Reasons for Optimism

As deal rates drop and dollar values rise - regionally, nationally, and globally- a culture of carefulness is taking hold. The Southeast has shown this measured approach to using deployable capital is good for founders and investors.

Equity capital has always been considered an expensive form of funding. In the current economic environment of high inflation and interest rates, equity funding is even more costly. So, even as fewer checks are being cut, deals are still happening, and many are larger and of higher quality. The bottom line is this: a slowing VC environment can seem like a doom-and-gloom story (it's excellent clickbait). In the long run, a more careful and meritocratic approach to private capital is the recipe for building and growing sustainable, exceptional businesses that can solve global challenges.

For more about how the startup and investment environment has evolved in the past few years, check out the State of Startups^SM in the Southeast reports 2018-2023.

‍Resources

• State of Startups^SM in the Southeast Report 2023, BIP Ventures‍
• Q3 2023 State of Venture Report, CB Insights ‍
• What Are The Most Educated Cities In The U.S.? Top 100 Cities Ranked, Forbes‍
• This Southern city is the No. 1 place to start your own business, CNBC ‍
• For anyone starting a business, these 10 metros are standouts, LinkedIn
• NVCA 2023 Yearbook‍
• Bureau of Labor Statistics