H2 2023

As we wade through the unsettled waters of 2023, it’s worth reflecting on how much has changed. At the onset of the year, top market strategists called
for weak public markets. Analysts cited concerns over increased market volatility, Federal Reserve overtightening, credit shocks, elevated inflation,
recession risk, falling corporate and investor sentiment, rising unemployment and geopolitical tensions. In spite of these hurdles, the market has proved
resilient. As of August 17, the S&P 500 stood at 4,370, up 14% on the year. Inflation has fallen precipitously, unemployment remains near recent historic
lows, the Fed has grown increasingly confident that it can avoid a recession, and investor sentiment seems to be warming.
Top players in the private markets, SVB included, predicted material drops in fundraising, investment and exits. While that has mostly played out, for
pockets of the innovation economy a floor is beginning to form. Valuations and investment appear to be stabilizing, company profitability is modestly
improving, and generally companies have ample runway. This momentum could reopen the IPO window, bring confidence and stability to late-stage
investment and valuations, and help balance limited partner (LP) allocations to public and private markets. Marc Cadieux
Looking ahead, there are several key indicators that give us pause, such as an inverted yield curve, falling corporate profits, muted LP distributions, President
increased down rounds and declining revenue growth among startups. Despite this adversity, SVB continues to believe in the resilience of the innovation mcadieux@svb.com
economy. Uncertain and challenging market conditions provide an opportunity for startups to focus on building, on product market fit, on talent, on
efficiency, on profitability and on innovation. Startups are already making headway in these realms. Burn multiples have decreased 24% since the start of
the year. Operating margins have improved 37 percentage points (pp) since this time last year. There is no doubt companies will be busy shifting their
business to improve their position — but it’s the right kind of busy. Companies that embrace these tactics are well-positioned to accelerate as headwinds
become tailwinds.
SVB’s State of the Markets report leverages our unmatched proprietary data and vast network of deep relationships with investors and startups to gauge
the health and productivity of the innovation economy. For this edition, we surveyed 80 notable venture capitalists (VCs) to delve into the new normal for
banking. The consensus is clear. Treasury management is more important than ever, and investors recommend diversifying risk among two banks for most
companies. Our spotlight on innovation banking (pages 7-9) dives deeper into this subject to provide key takeaways on how VCs are thinking about
banking when it comes to their portfolio companies.
Mark Gallagher
US investors sit on north of a trillion dollars in dry powder across private equity (PE) and VC strategies. They can be patient, but they can’t be stagnant. Co-Head of Investor Coverage
Capital will need to be deployed. If history is a guide, tech will remain an integral part of a recovery and likely be the foundation for a new bull market. mgallagher@svb.com
Exciting technologies such as generative AI will help usher in a new age of innovation.
The venture ecosystem may not have turned the corner just yet, but it’s clear the tide is starting to change, and we will be there for our clients every step of
the way. We look forward to working with and are committed to supporting the best and brightest companies and investors in the innovation economy.

Marc Cadieux Mark Gallagher

President Co-Head of Investor Coverage
Silicon Valley Bank Silicon Valley Bank

STATE OF THE MARKETS 2

H1 2023 Outlook: US VC funds will likely
raise $70B in 2023, down 50% from 2022,
driven by subdued public markets, high
interest rates and muted distributions to LPs.
H2 Update: Capital Raised
$35B $70B
H1 2023 Actual Full-Year Forecast
From H1 Report
VCs are on target to raise $70B by year-end,
as anticipated. Continued rate hikes and
slow deployment of record-high dry powder
are deterring new funds until investments
pick up.
H1 2023 Outlook: US Series A tech
deals will likely decline 15% to 1,250 deals
in 2023, falling back to 2015-20 levels on
mismatched valuation expectations
and slower growth.
H2 Update: Deals
470 1,250
H1 2023 Actual Full-Year Forecast
From H1 Report
Series A deals are on pace for a 36%
drop from last year, tracking below our
expectations. While early-stage valuations
and investment are more resilient than late-
stage, investors are still slowing down.
H1 2023 Outlook: Late-stage
US tech valuations will likely settle at
60%-65% below Q4 2021 levels,
reaching a floor as public and private
markets converge.
H2 Update: Valuation Decline
-61% -65%
H1 2023 Actual Full-Year Forecast
From H1 Report
Valuations may be approaching the floor.
The median later-stage pre-money
valuation bottomed out at 61% below
market peak in Q1, then rebounded 6 pp in
Q2. The bounce may signal pricing clarity.
However, valuation overhang persists.
H1 2023 Outlook: US VC-backed tech
IPOs will likely remain dormant in H1 2023,
though pent-up demand and greater
interest rate clarity may lead to
10+ VC-backed IPOs in 2023.
H2 Update: IPOs
1 10
H1 2023 Actual Full-Year Forecast
From H1 Report
Valuation overhang is suppressing later-
stage exits. The IPO route remains blocked
with only one VC-backed exit in H1. Barring
a strong Q3, we’re lowering expectations
and looking for an open window in 2024.
STATE OF THE MARKETS 3
Macro: Big Tech Booms While Banking
Comes into Focus

Fundraising: Capital Tied Up

Investment: Finding the Floor?

Startup Benchmarks: Bottom Line

Top of Mind

Exits: Looking for Soft Landings

STATE OF THE MARKETS 4

Macro
Big Tech Booms While
Banking Comes into Focus

STATE OF THE MARKETS 5

 US Federal Funds Rate (FFR) and Inflation1 US Corporate Profits
FFR Inflation Avg Inflation (1980-2019) Recession US Corporate Profits (After Taxes) YoY2 Change
Change to FFR: Increase Decrease No Change $3.0T
$2.8T
$2.7T
10% $2.4T
Economic expectations couldn’t have started much lower this 9.1% 55%
$2.0T $2.1T
year. In January, the S&P 500 was down 20% from the year 22-year high
8%
prior and heading in the wrong direction. Inflation, though
33% Largest drop in
abating, was still twice the historic average. Fed-controlled $1.8T
6% corporate profits
interest rates, already at 15-year highs, were climbing with no since Q2 ’20
20% 20%
end in sight. Mounting tech sector layoffs threatened to spill 5.5% 18%
into the broader economy, and corporate profits — an 4% 11% 10% 8%
indicator of business investment and spending — dipped to a 3.2% 5%
2% 3% 1% 2%
two-year low. Surveying these headwinds, economists polled 2%
in January by The Wall Street Journal (WSJ) found a 63% 0.25% -1% -1%
Below average -9% -5%
likelihood of recession in 2023, a near-record level of 0%
pessimism. The market braced for a recession. So far, it hasn’t 2020 2021 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
materialized. 2019 2020 2021 2022 2023
FOMC Decision
While challenges still exist — borrowing rates are higher than
they’ve been in 20 years — the macro picture has generally
improved. Inflation appears tamable, unemployment has
remained near all-time lows and public markets are surging Public Market Performance: Indexed Market Cap of Tech Cohorts vs. S&P 5003
back. After 18 months of uncertainty, there are signs that
FAAMG Companies S&P 500 (Without FAAMG) 2021 Tech IPOs
confidence is returning to the market. The S&P 500
has recovered nearly all its losses since the downturn.
The latest WSJ poll from June showed a 54% chance of 0% FAAMG Market Cap 2023
recession, back into coin-toss territory.
-10% -8.0%
Jan ’23 Jul ’23 Growth
Perhaps no group is having a better year than Big Tech. -10.7%
The five tech giants of Meta, Amazon, Apple, Microsoft -20%
and Google have mounted a remarkable comeback to -23.3% $2.0T $3.0T 51%
-30% The 2021 Tech IPO
collectively reclaim more than $3T in market cap since
cohort hasn’t seen
January. The turnaround has accompanied a rise in AI -40% $1.8T $2.6T 44%
the gains of FAAMG
applications that has captured public interest in what the next -41.1%
era of technology may mean for humanity. While Big Tech is -50% $1.2T $1.6T 38%
rising, not all tech companies are being lifted. Venture-
-60% -58.1%
backed tech companies that went public in 2021 are $0.9T $1.4T 58%
struggling to meet lofty expectations. These struggles are -70%
having a knock-on effect throughout the innovation economy -70.4%
$0.3T $0.8T 142%
as a backlog of exit-ready companies tread water. -80%
Jan '22 Apr '22 Jul '22 Oct '22 Jan '23 Apr '23 Jul '23

Notes: 1) Inflation measured as the year-over-year (YoY) change in the Consumer Price Index. 2) Year-over-year (YoY). 3) As of 7/14/2023. FAAMG
companies include: Meta (Facebook), Amazon, Apple, Microsoft and Alphabet (Google).
Source: S&P Market Intelligence, Bureau of Labor Statistics, National Bureau of Economic Research, The WSJ, and SVB analysis. STATE OF THE MARKETS 6
 Timeline of Notable Banking Events in 2023
S&P Regional Banks Index (March 1, 2023 = 100)

Mar 8: Silvergate May 1: First Republic Bank is

Bank announces Mar 9-10: SVB put into closed by FDIC and acquired Select Bank Rankings by US Assets3 Jul 25: PacWest and
liquidation FDIC receivership by JPMorgan Chase Banc of CA merge
Bank Jul ’22 Jul ’23
Startups grappling with the VC downturn faced an added
stressor in March when simmering concerns about the JPMorgan Chase 1 1
100 Mar 12: FDIC closes Signature Bank,
banking sector boiled over. The rapid rise in interest rates over First Citizens
later acquired by Flagstar Bank2 30 16
the last two years put many banks’ investment securities 95 Bank
underwater. In Q4 2021, US banks had just $8B of 90 Mar 19: Facing closure, Credit HSBC 21 25
unrealized losses on their securities portfolio, which 85 Suisse is acquired by UBS
PacWest +
ballooned to $620B over the next year as the Fed began its 80 Mar 27: First Citizens May 4: Index 55 41
Banc of CA
rate hike cycle. Between March and July, a handful of 75 Bank acquires SVB1 is down 41%,
notable banks facing liquidity concerns, including SVB, went 70 a 3-year low
into FDIC receivership and were subsequently acquired. 65 Jul 15: Index is trending
This shock to the banking system — the biggest financial 60 Mar 15: Index is down higher and recovers half
crunch since the Global Financial Crisis (GFC) — has 55 29% from Mar 1 its losses since Mar 1
reverberated in the innovation economy. For banks, the 50
ripples from March have resulted in increased scrutiny from Mar 2023 Apr 2023 May 2023 Jun 2023 Jul 2023
credit rating agencies, which have downgraded the credit
ratings of at least 10 US banks, with more under review (as of
August 11). These pressures, coupled with higher interest US Demand for Small Business Loans US Venture Debt Deals
rates and other market forces weighing on regional
commercial lenders, have contributed to constrained debt and Tightening Lending Standards4 Deals Capital
983
975
markets and tighter lending standards. As a result, US venture Net Percentage of Banks Tightening Lending Standards 892 932
debt deployments have fallen back to 2017 levels. 824
Net Percentage of Banks Reporting Increased Demand 825 907 796
747 761 774 774
For some tech companies, higher interest rates and 725 705 746 837
broader macro challenges such as slowing VC investment 80% 676 796 781
754
and weaker revenue growth are making debt financing a 60% 720 707 557
47% 663
less viable source of capital. A Federal Reserve poll of 641
senior loan officers in July showed that demand for loans to 40%
532
companies with less than $50M in revenue was at its weakest 20%
level since the GFC, while lending standards had also
0%
tightened to near-record highs. While this data is not specific
to VC-backed companies, it highlights how many banks are -20%

$11.0B
$11.3B
$12.7B
$18.3B
$20.4B
$12.5B
$10.1B
$20.1B
$11.8B
$18.3B
$14.4B
$20.5B
$23.4B
$21.1B
$24.0B
$18.3B
$20.9B
$17.2B
$13.3B
$12.7B
$6.1B
$5.7B
$4.5B
$8.9B
$8.7B

$5.4B
tightening their lending standards and slowing the flow of -40%
capital. Despite these trends, tech companies seeking loans
may benefit from new competition for their business. Since -60%
-63.5 -53.3

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
March, a range of conventional banks have entered the -80%
innovation space or sought to expand their presence. 2007 2011 2015 2019 2023 2017 2018 2019 2020 2021 2022 2023
Notes: 1) First Citizens Bank acquired SVB’s US private and commercial banks. It did not acquire SVB Securities, SVB Capital or SVB’s internationally-
located businesses. 2) On March 20, Flagstar acquired $38B in Signature assets, including 30 banking branches. The FDIC retains $60B in Signature
assets. 3) July rankings estimated based on acquisitions and latest available assets. 4) Small business are those with under $50M in annual revenue.
Source: S&P Market Intelligence, Federal Reserve Board of Governors, PitchBook and SVB analysis. STATE OF THE MARKETS 7
 VC Guidance: How Founders Should Prioritize Business Challenges2
Rank 7th 6th 5th 4th 3rd 2nd 1st

How VCs See Their Role in

Product Market Fit 4% 12% 13% 17% 55%
Startup Banking Decisions:
The events of this spring have created a new set of norms
and standards for how startups and VCs manage their Customer Acquisition 6% 19% 30% 36% 3% Do not advise, 5%
accounts. It’s no longer standard practice to keep all
deposits with one bank. That much is clear. But beyond that Enforce firm
Fundraising 1% 6% 22% 31% 14% 23%
baseline, what best practices are emerging? For instance, expectations,
how many banks should a company keep? What factors are 11%
Hiring 1% 6% 13% 32% 15% 22% 10%
important for evaluating the right banking partner?
To better understand best practices, we surveyed 80 notable Macro Headwinds 21% 17% 32% 12% 8% 9% 3%
VCs on their advice to founders.1 Overall, our findings
underscore VCs’ view that founders, who may have once put 1%
Treasury Management 23% 41% 27%
banking on the back burner, must now actively manage their
Advise on best
cash allocations as they do other business priorities. When
Regulatory Risk 49% 35% 12% 3% practices, 84%
asked how founders should rank treasury management
among other business challenges, VCs gave it near the same
importance as navigating macro headwinds or managing
regulatory risk, two areas that have always been on founders’
radar of priorities. The survey also made clear that other Most Important Features in Choosing a Primary Bank for VC-Backed Companies
essential needs such as product market fit, customer
Average Rating: Very Important = 10 5 0 = Not at All Important
acquisition and hiring should come first.
Moderately Important
VCs are taking a more hands-on approach to their portfolio
companies’ banking decisions. Of the VCs we surveyed, over
95% say they advise their clients on banking practices, with
Non-Negotiables Differentiators
9.0
11% going further to enforce firm expectations. When it 8.5 8.4 8.3 8.1
comes to the most important features to look for in a
7.0 7.0 6.7
primary bank, the top features were non-negotiables 6.7
6.3
such as security and stability, execution and reliability,
and products for startups. Below these table stakes were
differentiating factors, such as relationships, the size of
the bank and industry knowledge. These secondary factors
are still valued by VCs, all rated above moderately important.
Now that competition in innovation banking is more fierce
and companies are shoring up the must-haves in a banking
relationship, it’s possible that these peripheral factors like
networking and industry knowledge could carry additional Stability and Execution and FDIC Insured Customer Products for Relationships Technology and Interest Bank Size Industry
sway. Security Reliability Service Startups and Network Platforms Rates/Yield Knowledge

Notes: 1) SVB survey of 80 general partners at US VC firms, conducted from 7/24 to 8/4/2023. 2) May not sum to 100% due to rounding.
Source: SVB survey, SVB proprietary data and SVB analysis. STATE OF THE MARKETS 8
 Factors VCs Consider When Advising US VC-Backed Tech: Cash and
on Banking Decisions Cash Equivalents by Revenue Band2
Percentage of VCs Citing the Factor as a Consideration Median Middle 50% of Companies

$221.0M
When it comes to considerations for dividing assets between Revenue
multiple banks, it is, unsurprisingly, all about the amount of
cash held. Outweighing considerations like the experience of
the founding team and the presence of a CFO on staff, 77% Experience of Cash Held and
of VCs said they weigh a company’s cash and amount raised Founding Team 34% 76% Amount Raised As revenues grow and
when giving guidance on banking decisions.1 35% cash on hand multiplies,
the complexity of
There were three main strategies considered for dividing banking increases
$81.4M
money among bank accounts. The largest group of VCs 42% $52.1M
advised keeping a cash reserve beyond what is needed for If the Team Has 76% Company Stage
normal operations, with 40% of VCs favoring this approach. a CFO 52% $23.1M
$9.7M $23.9M
A less conservative approach is to keep a buffer to meet $9.8M $29.8M
$4.2M
short-term payroll, say two pay cycles, for example. $1.6M $4.0M $10.5M
Over 28% advised this approach. The most conversative Cash Burn
Less than $10M $10M-$50M $50M-$100M $100M+
strategy was to move any money outside of the federal
insurance amount of $250k. Nearly a third of VCs favored
this approach, though the infeasibility of having dozens of
banks suggests that it would take the form of an insured How Much Capital Should Companies VC Guidance: Number of Banks Startups
treasury management product like a cash sweep. These
products have gained traction since March, though this route Keep Outside of Their Primary Bank?3 Should Have by Revenue Band
is typically reserved for companies with more cash. Of VCs Median Middle 80% of Responses
who recommend the strategy of FDIC-insured limits, 94%
said they’ve advised portfolio companies to consider insured Emergency buffer 6
accounts. to meet short- VCs advise 2 banks
Anything beyond
term payroll for companies under
In practice, there are only so many banks a company can what is needed for 5
28% normal business $100M in revenue
keep. For most companies, two is enough. That was the
median recommendation for companies up to $100M in operations
4
revenue. At that threshold, the median advice jumps to three 40%
banks. This tracks with the guidance that cash is the most 3 3
important factor for these decisions. As companies bring
in more revenue and their cash reserves multiply, the
2 2 2 2
complexity of their banking needs grows, necessitating
more diversity. It’s also likely that preferences — based on Anything above 31%
relationships or familiarity or the desire for access to 1
FDIC-insured
specialized products — will weigh more heavily over time. limits
0
Less than $10M $10M-$50M $50M-$100M $100M+
Notes: 1) SVB survey of 80 general partners at US VC firms, conducted from 7/24 to 8/4/2023. 2) Annual revenue calculated
using the revenue run rate for the statement period. 3) Does not sum to 100% due to rounding.
Source: SVB survey, SVB proprietary data and SVB analysis. STATE OF THE MARKETS 9
Fundraising
Capital Tied Up

STATE OF THE MARKETS 10

 Annualized US VC Fundraising Years Between US VC Funds
Trailing 12 Months Trailing 3 Months (Annualized) Closed of the Same Fund Series1
Dot-Com GFC Median Middle 50% of Companies
Slowdown Slowdown
$250B
4.5
US VC fundraising saw five consecutive record-breaking
years starting in 2017, growth that was fueled by low interest H1 2022 $102B 4.0
$200B
rates, investors seeking alpha in private markets, and H2 2022 $51B 3.5
tailwinds for technology that leapfrogged adoption during
H1 2023 $35B 3.0 2.7 2.7 2.6
the pandemic. But the party is over. Since H1 2022, US VC $150B 2.5 2.6 2.5
fundraising has fallen 66% to just $35B in H1 2023. Many 2.5 2.1
firms don’t need to raise capital; they raised it during the
2.0
boom and are now biding their time and deploying capital far $100B
more slowly. The pressure from LPs to deploy capital is also 1.5 1.9
1.7
gone. Anecdotally, many LPs, already over allocated to
$50B 1.0
private markets, would prefer VCs not continue to call Early signs
capital. But the clock is ticking and this pause cannot last of reaching a 0.5
forever. bottom
$0B 0.0
The tighter market has shown up in several key metrics for 1998 2001 2004 2007 2010 2013 2016 2019 2022 2015 2016 2017 2018 2019 2020 2021 2022 2023
VC fundraising and deployment. First, the time between
funds is beginning to increase as funds are not coming back
to market as quickly. This is due to their slower pace of US VC Dry Powder US VC: Average Dry Powder Deployed
deployment and a lengthier timeline for those raising capital
because of muted demand from LPs, who have yet to see
Weighted Average Age (Yrs.) Total Dry Powder Two Years After Fund’s Vintage Year
material liquidity from their VC holdings in recent quarters. Dot-Com GFC
Second, the average age of dry powder is beginning to Slowdown Slowdown 42%
increase. The dot-com bubble and the GFC saw the weighted $300B $283B 3.0yr
average age of dry powder increase significantly as VC
fundraising slowed and VCs called capital less frequently. $250B 2.5yr 32%
Third, the percentage of dry powder deployed for funds with
a vintage of 2021 is just 9% — lower than any previous cycle. $200B 2.0yr 25%
This indicates that the capital raised at market peak remains
untouched. While the amount of US VC dry powder is a $150B 1.5yr
bright spot in the innovation economy, with limited LP
pressure to invest, capital deployment is likely to remain $100B 1.0yr 9%
slow — at least until more companies are forced and
there is more agreement on terms and pricing. $50B 0.5yr

$0B 0.0yr Non-Downturn Dot-Com 1 GFC 20212

2000 2004 2008 2012 2016 2020 Vintages

Notes: 1) For funds of the same series time between close dates of the fund. 2) Assumes current run rate of deployment through year-end.
Source: Preqin and SVB analysis. STATE OF THE MARKETS 11
 US VC Funds’ Share of TVPI Held US VC Funds Median DVPI and DVPI
in RVPI by Vintage Fund Year Share of TVPI by Strategy2 for 2010-2015
RVPI at Least 25% of TVPI RVPI at Least 50% of TVPI Median DVPI DVPI Share of TVPI
RVPI at Least 75% of TVPI 0.83x
Following a surge in VC investment, valuation increases 100% 0.75x
and material exits in 2021, the private market industry 96%
delivered stellar returns. However, as the industry has 89% 88%
entered a new phase, those returns haven’t translated into
82% 97%100%
distributions, but rather paper gains. More than 80% of 68% 65% 85% 84% 87% 90% 0.54x
80% 50%
US VC fund vintages since 2010 have at least half of 60% 70% 74% 76% Majority of fund
53%
their total value to paid-in capital (TVPI) tied up in 50% value unrealized 37%
44% 41% 41% 59% 59%
residual value to paid-in capital (RVPI).1 This indicates
52% Majority of fund
that half of funds’ value is in unrealized paper
33% 28% 43% value returned to 22%
markups. The percentage of return tied up in undistributed 22% 40%
35% LPs
valuation gains only increases as you move along the fund
vintages. When cutting the data by fund stage, as 23% 22%
17% 16%
expected, funds focused on earlier-stage investments
have a disproportionately smaller amount of returns from 2007 2009 2011 2013 2015 2017 2019 2021 General Early-Stage Late-Stage
distributions.
Without an open exit market, investors have been
forced to extend hold times for their portfolio Count of Active NAV Facilities Common Use of a NAV Facility
companies or seek alternative solutions for liquidity.
One option general partners (GPs) have used more is the Indexed to 100 by Year3 Support a portfolio
net asset value (NAV) loan. Uses of NAV loans could range company in any life
from growth capital support for portfolio companies, stage (negative cash
financing for bolt-on acquisitions or distributions to LPs, flow, growth, etc.)
Fund a portfolio
especially before beginning to raise another fund. This company acquisition
third purpose is becoming increasingly popular. Look no ~30% Growth or recap
further than the Carlyle Group, which recently used a
€1.25B NAV facility on its fifth European buyout fund to Potentially enhance
accelerate distributions back to LPs. overall Fund IRR

This could signal a shift in the purpose of NAV facilities, Bridge a portfolio
putting the emphasis on consistent distributions and 217 company to a pending
liquidity management rather than portfolio growth or liquidity event
167 Hedge currency risk of
150
internal rate of return (IRR) enhancement. international assets
100 100 without posting cash
for collateral diluting
fund return Provide liquidity
to LPs through
2019 2020 2021 2022 2023 distributions
Notes: 1) As of 8/9/2023. Performance data for US VC funds as defined by Preqin with vintage years from 2010 to 2022. 2) Strategy defined by Preqin.
Early-stage includes startup, seed and undefined early-stage funds. 3) Data as of year end for all dates except 2023, which is as of 6/30/2023.
Source: Preqin, Private Equity International, SVB proprietary data and SVB analysis. STATE OF THE MARKETS 12
Investment
Finding the Floor?

STATE OF THE MARKETS 13

 Capital Requirements: Percentage of US VC-Backed Tech
US VC-Backed Tech Startups1 Startups Running Out of Runway by Date2
The Funding Gap will lead to: 90%
• Companies capitulating
80%
On a monthly basis we estimate US VC-backed tech to lower valuations 46%
companies collectively burn $27.6B net of revenue. In other • Soft-landing M&A to 70% of companies
words, these companies rely on outside sources of capital to recoup value of
60% must raise
cover $27.6B of net burn. In 2020 and 2021, record VC companies unable to raise
investment meant companies could raise capital relatively $27.6B • Company failure 50%
within12 months

easily and on favorable terms. This pushed company burn The estimated
amount of capital 40%
higher as companies prioritized growth over profitability.
required to cover 30%
Now the tables have turned, and companies have cut back.
However, burn is still high — it’s harder to reduce
US VC-backed
companies’
$13.1B 20%
spending than to increase it during good times. As a Monthly equity
monthly burn 10%
result, there is a significant gap between the $27.6B that and debt
investment into
companies burn each month and the $13.1B in VC 0%
VC-backed tech
investment that has occurred (on average) each month in companies
Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May
2023. This is the funding gap. 2023 2024 2025
A funding gap is a normal part of the venture ecosystem. Total Required 2023 Monthly Capital
It ensures that companies that are underperforming are
not funded and keeps the ecosystem healthy. However, a Percentage of US VC-Backed Tech Startups that Must Raise in the Next 12
50% gap means that many companies will be unsuccessful
at raising capital and must look for alternatives such as Startups that Must Raise: Next 12 Months2 Months: Distribution of Capital Required3
reaching profitability or pursuing an acquisition to avoid Capital Required for 12 Months 18 Months 24 Months
60%
failure. Companies that can raise capital may have to an Additional: of Runway of Runway of Runway
accept lower valuations and tougher terms that induce
investors to invest. 55%
Interpretation: 56% of companies
56% would need to raise less than $10M
The gap is immediately apparent to companies with limited 50% Below historical levels to secure 12 months of runway
runway that must raise capital now, but most companies
aren’t in that position yet. In the next 12 months, only 46% 41%
45% 36%
of US VC-backed tech companies must raise, which is 32% 34%
lower than historical pre-pandemic levels. As companies 30%
40% 22%
adjust burn and VC investment normalizes over time, we
18%
expect the gap to decrease.
35% 10% 12%
6%
2%
30%
$0-$10M $10M-$25M $25M-$50M $50M+
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2017 2018 2019 2020 2021 2022 2023 Size of Company Fundraise

Notes: 1) Estimated based on net burn rates and the number of active US VC-backed tech companies that have raised capital in the last three years.
2) Assuming current burn rate and cash and cash equivalents. 3) Estimate uses current monthly burn rate and multiples by 12, 18 or 24 months.
Source: SVB proprietary data, PitchBook and SVB analysis. STATE OF THE MARKETS 14
 VC Investment in US Companies: VC Investment in US Companies:
Trailing Twelve months Indexed to 100 at Market Peak1
Dot-Com GFC Current Cycle
$400B Current
Cycle 100
While it is unlikely that we’ll see US VC investment levels return $350B Historical
90 recovery after
to 2021 levels in the near future, the question remains as to
$300B 18-24 months
where we are in the cycle. Using history as a guide, past
cycles have taken between 12 and 18 months to find a $250B
$182B 80
in line with 2019-2020 70
bottom. June marked the 18th month of this cycle, and while US VC investment levels
US VC investment levels may still fall, they are showing $200B
60
signs of stabilizing. Return to peak is another story — it took $150B
nearly 14 years to return to the peak achieved during the dot- 50

Market Peak
Dot-Com:
com bubble but only three years to recover from the GFC. $100B 40
13.8 years
2023 investment
Over the last 18 months there have been several shifts that have $50B 30 levels have
changed the VC investment landscape significantly. The zero GFC: 3.2 years started to settle.
interest-rate environment and low-cost capital of 2021 has $0B 20
disappeared, replaced with the highest rates in 22 years. The 1995 1999 2003 2007 2011 2015 2019 2023 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24
Months
pandemic tailwinds that catapulted tech adoption years ahead
have faded. LP appetite for alpha from private markets has
subsided as returns become available elsewhere and their
portfolios are overly weighted to private assets. Finally, with the Non-Traditional Investors’ Share US VC Investment from Notable
median 2021 US VC-backed tech IPO 62% below its IPO price,
late-stage activity has slowed 46% YoY as most late-stage of US VC Deal Activity Hybrid PE/VC Investors3
companies would prefer not to risk raising a down, flat or weaker 2021 H1 2023 Percentage Point Decline Deals Total Size of Deals 2023 Full Year
up round than anticipated. Participated in Extrapolation
This late-stage slump has also been impacted by hybrid PE/VC 512
26.2%
firms. As a proxy, we looked at a cohort of four notable hybrid 1.8 pp
24.4%
firms who reduced their US VC deal activity by 82% since 2021.3
These investors participated in 60% of the total value of deals in
2021; however, that has fallen to just 39% as PE investors have 325
retreated. Firms such as Tiger Global went from averaging nearly
15.7%
four US VC deals per week in 2021 to about two and a half deals 3.2 pp
a month in 2023. Yet not all non-traditional VC investors have 12.6% 168
11.2%
pulled back. Corporate venture capitalists (CVCs) have
remained active, dispelling the common misconception that 4.3 pp 94
6.9% $3B 47
they are tourist investors. Some CVCs are far more active $19B $86B $30B $6B
such as Lockheed Martin, which went from being the 50th most
active CVC to the 4th, highlighting the significant tailwinds in the Asset Private CVC Top 5 CVC Investors 2020 2021 2022 2023
defense sector, including NATO’s €1B deep tech defense fund. Managers Equity by Deals H1 2023 2

Notes: 1) Uses monthly VC investment number smoothed with a trailing three-month average to remove noise as of 6/30/2023.
2) Google Ventures, Salesforce Ventures, Alexandria Venture Investments, Lockheed Martin and Coinbase Ventures.
3) Notable hybrid PE/VC firms include: Insight Partners, Coatue Management, SoftBank and Tiger Global.
Source: PitchBook, PitchBook NVCA Venture Monitor, NATO and SVB analysis. STATE OF THE MARKETS 15
 US VC Down & Flat Rounds by Year Down & Flat Rounds as a Percentage
Percent of Deals That Were Flat Rounds of All US VC Deals by Stage
Percent of Deals That Were Down Rounds
2017 2018 2019 2020 2021
26.2% 2022 2023
It was only a matter of time. Following a frenzied 2021
dealmaking pace that many deemed unsustainable, the 22.6% 23.3% 35%
venture slump has hit startups — and finally shown up in the 21.0%
19.6% 30%
data. This year saw a jump in down rounds, accounting for 12.2%
the largest share of deals since 2018.1 Down rounds are an 10.7% 12.3% 25%
unwelcomed event for a number of reasons, namely because 10.5% 13.5%
9.9% 12.9% 20%
they can lead to outsized dilution, disgruntled investors and
employees concerned over their equity — not to mention the 5.9% 6.0% 15%
public black eye.
14.0% 10%
Even though 2022 was a muted year, startups likely had 11.9% 10.5% 11.0%
9.8%
enough runway due to an exuberant 2021 funding year. As 7.6% 6.9% 5%
startups have gone back to the venture well this year, they’ve 0%
been faced with the harsh reality that yesterday’s price is not 2017 2018 2019 2020 2021 2022 2023 Seed Series A Series B Series C Series D+
today’s price. In fact, Q2 2023 had the highest share of down
rounds (12.6%) since Q4 2017 (14.8%).1 As expected, most
of the down rounds are occurring at the late-stage, where
public comps are more readily available and the allure of US Startups Disclosing Valuations US Valuation Step-Ups by Series
early-stage potential is better understood.
Percentage of Deals with Post-Money Valuation Disclosed Median Middle 50% of Companies
This share of down and flat rounds could be even higher than US Bear Market3 415% 424%
the data suggests as more companies refuse to disclose their
263% 263% 222% 219% 253%
valuation during downturns. This is likely tied to startups 38.2%
37.6%

A to B
148% 143% 119%
wanting to avoid the public scrutiny of raising a down round. 36.6%
36.0% 100 pp.
Another possible scenario for not disclosing terms is if a 80% 122% 125%
66% YoY
company raised less capital or at a lower valuation than 45%
initially expected. 32.6%
300% 245%
Valuation step-ups2 in 2023 are the lowest they have been 32.3% 183% 185% 170% 123%
131%

B to C
31.7% 108% 106%
post-pandemic. Step-ups have fallen the most at the later 52%
88% 79 pp.
stage, with Series C to Series D valuation step-ups 51% 43%
69%
15% YoY
decelerating to 22% — the lowest total since 2010.1
Meanwhile, the earlier stage has remained more resilient as it 27.3% 257%
128% 162%
127% 150%

C to D
is less susceptible to changes in the public markets. 25.5% 86% 94% 82%
54%
22%
87% 57% 72 pp.
43% 18%
Firms tend to not disclose valuation during downturns. 7% YoY

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 2022 2023
Notes: 1) As of 7/31/2023. 2) Step-up defined as the percentage change from the current round’s pre-money valuation vs. its previous round
post-money valuation. 3) US bear market defined as a period where the S&P 500 declined by more than 20% from peak to trough.
Source: PitchBook and SVB analysis. STATE OF THE MARKETS 16
 US Tech Unicorn Formation and Value US Tech Unicorns Years of Runway
13% 62%
More unicorns formed
in 2021 than the prior $900B 31% of unicorns decline in VC
293 Last round value are profitable funding for unicorns
five years combined
The US innovation economy produced a record 293 new of all private US since 2021
tech unicorns in 2021 and added 168 more in 2022. tech unicorns
However, minting unicorns has all but stopped in 2023, with 20%
only 13 added in the first half. For the stable of 622 US tech 18%
unicorns, the question is what happens as the late-stage 16%
168
capital that supported them remains largely dormant.
One measure to understand the dynamics of unicorns is to 10%
examine what has happened to 2021 US VC-backed tech
IPOs, which saw their market caps fall on average 52%
$550B
71 78 4%
from their IPO date. If 2021 unicorns were marked to 57
market based on 2021 IPOs, we would expect their total 14 39 43 13
30
valuation to fall from $900B to around $550B. 4 9 9 17 Total H1 2023 mark-to-market value
of all private US tech unicorns 1 2 3 4 5 >5
At current burn rates, only 18% of unicorns will have to raise 02010 2012 2014
5 2016 2018102020 H1 2023
15 (including fallen unicorns)1 Years of Runway
in the next 12 months. The market dynamics may shift
by that time in favor of large, late-stage companies.
Nonetheless, unicorns have tightened their belts; 38% of
US tech unicorns have implemented layoffs since the
US Tech Unicorns EBITDA Margin2 US Tech Unicorns Annual
beginning of 2022, and EBITDA margins have improved Median Middle 50% of Unicorns Revenue Growth3
steadily since the beginning of 2022.
Median Middle 50% of Unicorns
But as companies have moved toward profitability, revenue -10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
growth has slowed. Only 13% of unicorns are profitable, and
they’ve been relying on large, late-stage deals to sustain their 2021 2022 2023
-30% 200%
operations. Even public companies have depended on
-30%
growth and capital. Uber, for example, founded in 2009
-50% -40%
and exiting a decade later, just reported its first profitable 150%
-47% -49%
quarter, indicative of the low-cost capital environment -55%
-70% -57% -58%
where investors favored growth over profitability. -64% 100% 78%
-67%
-75% 64%
Long-term, if private capital doesn’t continue to fund the -90% 48% 45% 48%
42%
herd of US tech unicorns, and if they exit through down- 50% 32% 25%
round IPOs, late-stage investors may pull back due to poor
performance. This dynamic could mean companies exit
-110%
38% 15% 12%

of tech unicorns 0%
sooner, reversing the trend witnessed in recent years of -130% have had layoffs Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
companies relying on private capital investments to stay since January 2022
private longer. -150% -50% 2021 2022 2023

Notes: 1) Mark-to-market values assessed using average performance of the 2021 US VC-backed tech IPO cohort; only companies that haven’t raised since
2021 were revalued. 2) Using a representative sample of US tech unicorns. 3) Annual revenue growth rate calculated using the quarterly revenue growth rate.
Source: PitchBook, S&P Market Intelligence, SVB proprietary data and SVB analysis. STATE OF THE MARKETS 17
 Key Milestones in Generative AI and Notable Corporates Funding AI Research
Funding in AI1 as a Percentage of Total VC
Company Annual R&D Key AI Business Unit/Products
Percentage of US VC Invested Index of Google Searches for AI2
in AI Companies (TTM)

AI applications have augmented our lives for years, 26% $73.2B Amazon Bedrock
performing tasks from setting our kitchen timers to detecting
cancer cells. With the rise of generative AI, we’ve entered a OpenAI OpenAI OpenAI
new realm. Powerful language models such as OpenAI’s GPT launches launches launches $39.5B DeepMind Technologies Lab, Bard
are demonstrating the capacity for computers to mimic GPT-2 GPT-3.5 ChatGPT
human creativity and improve productivity in ways that
far exceed anything that came before. Where Alexa could 20% $35.3B AI Research SuperCluster
recite a Wikipedia article, ChatGPT can compose one. 21% OpenAI
19% 19% launches
The seemingly limitless promise of software capable of 18% 18% 19%
17% GPT-4
writing a hit song or crafting a business plan has become a 17% $27.2B OpenAI, Co-pilot (Productivity Software)
bright spot in the innovation economy, as founders and 17% 18%
Google
investors race to stake their claim in the AI gold rush. 15% 17%
16% 16% 16% launches
15% Bard $9.8B Cruise (Self-Driving Cars)
The share of US VC investment in AI companies jumped
to 26% for the 12 months ending in Q2 2023, a 10 pp spike 2019 2020 2021 2022 2023
from the year prior. Not only has the deal activity
increased, but investors are also paying a premium for AI
exposure. This year, companies at the seed stage — which US VC Investment in AI1 AI Valuation Bump for Seed Stage
are less prone to market volatility — have seen a 33% spike
in valuations if they list AI as a tech vertical.1 Many of these
Deals Capital Enterprise Software Frontier Tech Tech Companies by Sector in 2023
companies are incorporating AI into their core business Fintech Healthcare Consumer Internet Climate Tech
Median Post-Money Valuation: With AI as a Tech Vertical
products, mining the technology for efficiency gains by 867
4% AI Valuation Premium Without AI as a Tech Vertical
replacing workers with chatbots or adding revenue-
783 786 6%
producing features. The biggest opportunity may belong to
704 711 12%
those selling the picks and shovels. AI chip producer 77% 33% 21% 58%
762 623
NVIDIA is among the top-performing stocks in the S&P 500 597 613 12%
this year, increasing its market cap 2.5x since January. 599 656 537
518 $19.9M $20.0M $20.5M
593 $18.7M
Large corporations have invested heavily in AI 21%
546 515 $16.5M
521
infrastructure for decades. Companies like Google have 471 $15.0M
long touted the potential for AI as a new paradigm for $13.0M
computing. Microsoft invested $3B into OpenAI, with a $10.6M
further $10B committed. GM has invested billions into its
$10.2B 44%
$13.5B
$20.4B
$13.5B
$17.0B
$13.9B
$11.6B

$16.0B
$14.8B
$6.7B
$6.4B
$7.8B
$6.2B
$5.9B
$7.2B
$6.8B

$7.5B
$8.1B
self-driving car subsidiary, Cruise, now offering nighttime
rides in San Francisco. Collectively, R&D spending at
Google, Meta, Microsoft, Amazon and GM exceeded $176B
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 AI Funding Consumer Enterprise Fintech Frontier Tech
in 2022 — an amount greater than 48 state budgets. Since 2018 Internet Software
2019 2020 2021 2022 2023
Notes: 1) Deals include the PitchBook vertical “artificial intelligence and machine learning” as of 7/17/2023. TTM = Trailing 12 months.
2) Aggregated search terms for “artificial intelligence” indexed to 100 for the top search month since 2004.
Source: PitchBook, Google Trends, company annual reports and SVB analysis. STATE OF THE MARKETS 18
 VC Investment in US Companies Key Metrics by Region
Capital Invested H1 20231 H1 2023 Median Early-Stage Valuations Percent
Change Since 2020
of VC investment
61% is from CA and NY
$8B 120%
Despite the transition to remote work enabling workers to
move out of cities, California and New York remain the $2B $10B
dominant force in US VC investment. In 2019, these states 100%
accounted for 62% of US VC investment. As of H1 2023, that $4B
number remains more or less unchanged at 61%. While $5B 80%
$5B
metros like Miami have tripled in size since 2020, the up-
and-coming regions remain small relative to established VC 60%
hubs. The network effects of repeat founders,
established pools of capital, and a VC community make $4B 40%
top regions hard to surpass. Nonetheless, tides are turning $3B
in established markets. A McKinsey study found demand for
office space could fall 20% in San Francisco and 16% in New
$44B 20% CA and NY witnessed the steepest
increase and decline in valuations
York by 2030. Looking to Austin as an example of where
0%
companies may go, 197 companies expanded or relocated to 2020 2021 2022 2023
Austin in 2021, but today the city is on track to see just 70
companies relocate or expand in a sign that some of the
trends accelerated by COVID-19 may now be decelerating. H1 2023 Pre-Money Valuations By Stage and Region
Nonetheless, US VC investment is not a monolith, and
Median Middle 50%
trends vary greatly depending on the region. During the
investment boom of 2020-2021, California and New York
$200M
saw the steepest increases in valuations, while other regions
lagged. Today, many regions continue to play catch-up with
valuations. While the median valuations may still be climbing
in the middle of the country (Mountain, Midwest and South $150M
regions), California and New York still hold a substantial
valuation premium. Furthermore, just because the median
valuation may be climbing does not mean all companies $88M
$100M
are seeing gains in these subregions. The reality is that $70M
fundraising dynamics are still challenging — every region $48M $50M $50M $52M $53M
$40M $43M
has seen substantial declines in VC investment. $50M $20M
$18M $17M $15M
$14M
Some of these regions are also more heavily impacted by $13M $12M $9M $16M
individual sectors. Miami, for example, has a vibrant fintech
scene, while the Mountain West sees more frontier tech. $0M
These sectoral differences result in investment trends Early Late Early Late Early Late Early Late Early Late Early Late Early Late Early Late Early Late
driven by industries rather than simply macro VC trends. Southeast Mid-Atlantic Mountain Midwest South New York West Coast New England California

Notes: 1) West (turquoise blue) includes Alaska and Hawaii (not pictured).
Source: PitchBook, Austin Chamber of Commerce, McKinsey: The Impact of the Pandemic on Real Estate and SVB analysis. STATE OF THE MARKETS 19
Startup Benchmarks
Bottom Line Top of Mind

STATE OF THE MARKETS 20

 US VC-Backed Tech Companies: Deal Benchmarking by Deal Date and Stage2
Series A Series B Series C Series D+

Median Pre-
Money Valuation $32M -21% YoY $80M -33% YoY $155M -39% YoY $309M -60% YoY
Valuations, deal size and investment levels are down
across all stages. These declines have been steepest at
Median Deal
the late-stage, mirroring trends in the public markets — Size $11M -13% YoY $25M -17% YoY $39M -21% YoY $54M -53% YoY
89% of VC-backed tech companies that went public in
2021 are below their IPO market caps.1 This decline in Annualized
tech IPO performance could be indicative of how late- Investment $23B -42% YoY $26B -38% YoY $17B -45% YoY $27B -46% YoY
stage companies would perform if they were to exit.
That said, reported valuations are only half the story; higher
liquidation preferences and investor-friendly terms are par
for the course across all stages. Median Middle 50% of Companies That Raised a Round

Not only are the deal metrics different today, but operating 500% 300% 250% 250%
metrics for companies raising capital are also different.

Annual Revenue Growth3, 4

400% 200% 200%
As companies focus on profitability and reduce burn, 200%
their revenue growth has fallen, which is compounded by 300% 150%
150%
a tougher macro environment. As companies are growing 200% 100% 100%
slower, the valuation calculus changes. Slower growth 100%
100% 50%
means higher forward revenue multiples and weaker 0%
50%
0% 0%
forecasts used to inform company valuations. In our
portfolio, we have seen many companies revise their -100% -100% -50% 0%
forecasts — sometimes multiple times.

Q1 '21

Q1 '22

Q1 '23

Q1 '21

Q1 '22

Q1 '23

Q1 '21

Q1 '22

Q1 '23

Q1 '21

Q1 '22

Q1 '23
No longer will growth alone support high valuations if
companies don’t have a clear path to profitability. While
revenue growth is lower, reductions to burn are showing up
0% 0% 0% 0%

Median EBITDA Margin3

in higher EBITDA margins. EBITDA margins for companies
successfully raising capital have increased substantially.
For example, the median EBITDA margins for companies -150% -100% -50% -40%
that raised a Series A have increased 71 pps since Q4 2022.
Ultimately, we believe the focus on profitability will create -300% -200% -100% -80%
stronger, leaner companies capable of sustainable growth
and stronger long-term performance.
-450% -300% -150% -120%
Q1 '21

Q1 '22

Q1 '23

Q1 '21

Q1 '22

Q1 '23

Q1 '21

Q1 '22

Q1 '23

Q1 '21

Q1 '22

Q1 '23
Notes:1) Data as of 7/20/2023. 2) Data as of 6/30/2023. 3) Calculated using trailing 4 quarters to remove noise from data.
4) Annual revenue growth is calculated using quarter-over-quarter (QoQ) data and annualizing the growth rate based on runrate.
Source: SVB proprietary data, PitchBook and SVB analysis. STATE OF THE MARKETS 21
 Median Months of Cash Runway by Revenue Band and Sector: US Tech1
2021 H1 2023

Consumer Internet Enterprise Software Frontier Tech Fintech

In aggregate, the US innovation economy is doing well in

terms of runway. Only 46% of companies will have to raise 32 28
in the next 12 months, which is below historical values
26 25
typically in the mid-50% range. The troublesome trend is 24
23
that runway continues to fall across the board for all stages 21 20 21 21
and sectors, as capital coming in through investment and 20
12 18 17 17 17
revenue lags capital going out through burn. 16 14 14 16 16 16
14 12 18
Overall, the early-stage is far more vulnerable than the 11 12 11 12
9 10 10
late-stage from a runway perspective. The typical company
with less than $10M in revenue now has less than a year of
runway. Anecdotally, a lot of the companies in this
cohort that do not have technical differentiators may
have the hardest time raising. Some consumer internet $0- $10M- $25M- $50M+ $0- $10M- $25M- $50M+ $0- $10M- $25M- $50M+ $0- $10M- $25M- $50M+
companies, for example, differentiate with their business $10M $25M $50M $10M $25M $50M $10M $25M $50M $10M $25M $50M
model and brand — not their technical capabilities. It is in
these areas where we expect the most difficult fundraises
and potentially the highest percentage of companies forced Runway by Revenue Band: US Tech1 Cash and Cash Equivalents by Revenue
to shut their doors as runway runs out. In contrast,
companies with technical intellectual property (IP), such as
$0-$10M $10M-$25M $25M-$50M $50M+ Band Indexed to 100: US Tech1
frontier tech, have a better case to make for an M&A. For COVID-19 Current Cycle $0-$10M $10M-$25M $25M-$50M $50M+
example, Spark AI, a seed-stage AI company in the industrial 40
Cuts
space, was acquired by Deere in March of this year. COVID-19 Current Cycle
35 350
Cuts
However, it’s worth noting that despite a 61% decline in
300
the level of US VC investment since 2021, tech company 30
runway across the board has only fallen 23% since its 250
peak in Q4 2021. This is in large part thanks to significant 25
cost-cutting by companies as they focus on profitability and 200
extending runway rather than revenue growth. 20
150
15
100
10 50

5 0
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2017 2018 2019 2020 2021 2022 2023 2017 2018 2019 2020 2021 2022 2023

Notes: 1) Annual revenue calculated using the revenue run rate for the statement period.
Source: SVB proprietary data, PitchBook and SVB analysis. STATE OF THE MARKETS 22
 US VC-Backed Tech Historical EBITDA Margin: US VC-Backed Tech
EBITDA Margin by Revenue1 with $10M-$25M in Annual Revenue
Median Middle 50% of Companies Median Middle 50% of Companies

0% COVID-19 Cuts Growth at All Costs Profitability Over Growth

As more companies face depleting cash reserves and few 0%
options to extend runway, founders are cutting every -20%
-20%
expense they can bear. While this trend began in 2022 as -40%
VC investment began to fall, the gains in profitability and -40%
efficiency continue to materialize. Operating margins for US -60% Growth companies -60%
VC-backed tech companies peaked in Q3 of 2020 after -80% typically reach an
asymptote around -80%
companies made significant cuts during COVID-19. At the
-100% $50M-$60M in revenue
same time, tech adoption accelerated. If the current trend of -100%
-120% and margins remain
improving profitability continues, we can expect operating
negative as they scale -120%
margins to surpass their 2020 peak by the end of the year. -140%
-140%
That said, VC-backed tech companies remain highly -160%
unprofitable by the nature of the VC model, which -160%
-180% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
depends on high growth and low profitability to achieve
scale. As of H1 2023, our proprietary data suggest only 7% $5M $15M $25M $35M $45M $55M $65M $75M $85M $95M 2020 2021 2022 2023
of US VC-backed tech companies are profitable and 13% of
unicorns.
The efficiency of unprofitable companies has increased
EBITDA Margin by Sector: US VC-Backed Median Burn Multiple: US VC-Backed Tech
markedly as measured by burn multiples. For example, Tech with $10M-$25M in Annual Revenue2 Burn Multiple
Trend: All Stages
Companies that Raised in the Last 18 Months
the typical company in 2022 burned $2.10 to gain one dollar Companies that Did Not Raise in the Last 18 Months
in new revenue. As of Q2 2023, that number is now $1.60 to Consumer Enterprise Fintech Frontier Tech
Internet Software
gain one dollar of new revenue. That said, those companies
that have successfully raised since 2022 are less efficient 2.1x
-36% 4.7x
compared to those that didn’t raise. Perhaps this is -37%
4.3x
indicative of the fact that they are less worried about runway -45%
than those that haven't raised. -55% -46%
-56% -61%
Complicating companies’ journey to profitability is the fact -76%
-74% 2.4x
that many late-stage enterprise companies have struggled
with customer retention, as many customers examine the 1.9x
1.6x
tools and services they use and seek to reduce costs. 1.8x 1.4x
-93% -103% 1.2x
Generally speaking, enterprise companies focused on core- 0.9x
business functions, such as cybersecurity or accounting,
have performed better than those required to perform non- 1.6x
-121%
essential tasks. 2017 2020 2023 $0- $10M- $25M- $50M+
2021 2022 2023 $10M $25M $50M
Revenue Band

Notes: 1) Trajectory assessed using historical data between Q1 2017 and Q2 2023 to reflect typical path of US
tech companies. 2) Data for 2023 as of H1.
Source: SVB proprietary data and SVB analysis. STATE OF THE MARKETS 23
 Percentage of US VC-Backed Tech US Tech Layoffs by Round of Job Cuts1
Companies with Decreasing Net Burn YoY Cumulative Layoffs by Round: 1st 2nd 3rd 4th
Layoff Announcements (3-Month Trailing Average)
300k
80% 140
One of the primary ways companies have sought to improve 68%
profitability and extend runway is through layoffs. While 70% 120
108 67% 107
250k
companies are focusing on other areas such as travel and 60% of tech layoffs since
100 200k
expense (T&E) and reducing spend on SaaS, headcount is March 2020 have
50% occurred in the last
among the largest line items for many startups, making it 80
10 months 150k
a core focus for cuts. Not only that, but many companies 40%
overhired in the high growth environment of 2020-2021, 60
30% 100k
and now face slower than expected growth and excess 40
headcount. 20%
50k
10% 20
In one signal of the trend, the online job site ZipRecruiter
cut one-fifth of its staff in June. The company, which primarily 0% 0 0k
serves the tech industry, experienced a 19% drop in YoY

Jan

Jan

Jan
Sep

Sep

Sep
Nov

Nov

Nov
Mar
May

Mar

Mar
May

Mar
May
Jul

Jul

Jul
Jun
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
revenue in Q1 and a 29% drop in Q2. ZipRecruiter said cuts
2018 2019 2020 2021 2022 2023 2020 2021 2022 2023
were necessary to “focus on profitability during times of
decreased demand.” They aren’t alone. With 68% of US VC-
backed tech companies reducing net burn, personnel cuts
have spiked in H1 2023, with first-wave cuts giving way to US Tech Layoffs by Sector and VC Round US VC-Backed Tech Burn Multiples
second, third and fourth waves of cuts. Our analysis showed
Climate Tech Consumer Internet Enterprise Software Companies That Made Layoffs Since 2022
that cuts are occurring across all stages and sectors of the
tech industry, though large layoffs at public companies Fintech Frontier Tech Companies That Didn’t Make Layoffs Since 2022
account for the majority of disclosed job losses.
0% 20% 40% 60% 80% 100% 1.9x
SVB proprietary data demonstrates that cuts do make an
impact on the bottom line. Companies that made layoffs in
H1 2023 had a 20% lower burn rate compared to Series A 1.6x 1.6x
companies that didn’t make layoffs. That happens to be the
average size of a force reduction for tech layoffs announced 1.2x
over the last 12 months. All of these layoffs may be keeping
Series B
the lights on. While US bankruptcies have spiked 68% this
year compared to last, VC-backed tech bankruptcies are
flat to last year’s rate, according to PitchBook data.
Series C

Series D+

Q1 2023 Q2 2023
Notes: 1) VC-backed or formerly VC-backed companies reporting layoffs and number of jobs cut.
Source: Layoffs.fyi, Reuters, PitchBook, SVB proprietary data and SVB analysis. STATE OF THE MARKETS 24
Exits
Looking for Soft Landings

STATE OF THE MARKETS 25

 Trailing Twelve Month US IPOs and IPO Filings by Year1
IPO Filings US IPOs VIX Bear Market Notable Tech IPOs

1,800 90

1,600 80
If you listen closely, you can hear the creaks of the IPO window

Number of IPO Filings & US IPOs

slowly starting to open. This is on the back of public market 1,400 70
indices steadily remaining in positive territory, despite most
calling for a muted year. The S&P 500 climbed 25% off its 2022 1,200 60

VIX Level
low and is up 17% year-to-date (YTD).1 Another glimmer of hope 1,000 50
is the recent IPO of restaurant chain CAVA. While not a
traditional tech IPO, its nearly 100% first day pop and 250%+ 800 40
return above its last private valuation provides investors
600 30
confidence that they can deliver a successful IPO in current
market conditions.1 400 20

However, private investors have recently shifted their view on 200 10

how long they plan to hold portfolio companies that recently
had a public exit before selling their position. In fact, nearly 0 0
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
one-fifth of 2021 US VC-backed tech IPOs’ outstanding
shares are held by private investors — who missed their
opportunity to liquidate at market peak and provide
distributions to LPs. This puts emphasis on long-term public Share of US VC-Backed Tech IPO’s Percentage of Outstanding Shares
market performance and a broader economic environment.
Below IPO Market Cap by Year1 of US VC-Backed Tech IPOs Held
As it stands now, it’s likely most private investors will continue
to hold on to their recently exited positions, given 64% of US by PE/VC Firms3
VC-backed tech IPOs since 2017 are below their IPO market
cap.1, 2 Even compared to measures like last private valuation 64% Average Percentage Held by PE/VC Firms by Year
22%
of US VC-backed 88% Aggregate Percentage Held by PE/VC Firms by Year
(LPV), over one-third of that same cohort remain below their
tech IPOs since 2017
LPV, with 43% of the 2021 cohort being below that
are below their IPO
watermark.1,2 Furthermore, the complicated cap tables of late- market cap
stage private companies pose challenges for companies who
need to raise. Many exit-ready companies may prefer taking 17%
50% 50% 12%
a down-round IPO rather than a private market down round.
42% 41% 42% 12%
Having a long-term view on the public markets may provide a 39% 9%
29% 10%
helpful perspective for investors. Some of the most notable
tech companies have gone public during downturns or volatile 5%
20% 4% 4%
market periods, indicating it’s not just about how you perform 14% 3% 3%
8% 3% 2%
out of the gate, but rather how you sustain that success over 0% 1%
1% 1% 1%
the long term. 0%
0% 0% 2% 0% 1% 3%
2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
Notes: 1) As of 8/10/2023. 2) Tech defined using SVB’s proprietary taxonomy. 3) Data as of latest company filing.
Source: PitchBook, S&P Market Intelligence, SEC EDGAR and SVB analysis. STATE OF THE MARKETS 26
 Share of Startup Exits by Exit Route1 US VC-Backed Tech M&A by Year1
IPO M&A Buyout US VC-Backed Tech M&A Count <$100M $100M-$500M

100% Projected 2023 US VC-Backed $500M-$1B $1B+

Tech M&A Count
80% 2023 2022
942
As public exits remain subdued, acquisitions continue to be 60%
the preferred exit route — even if not by choice. As 2023’s
40%
exit market mirrors last year, a greater share of exits are M&A
deals. Despite this, M&A deals are getting done at a slower 20% 6% 64%
661 646 648 5%
clip, with US VC-backed tech M&A on track to be 20% lower Transaction Count 612 24%
0% 578 7% 56%
than last year and the lowest total since 2013.1 As 509 14%
uncertainty still remains, companies likely look for more 100% Share of
clarity before moving forward with a deal. Plus, interest rates 80% M&A by Exit
at a 22-year high add additional hurdles to dealmaking by 297 Value Bucket
60% 2023 vs.
increasing the cost of acquisition financing and lowering
40% 20223
equity valuations.
20% 23%
These acquisitions are skewing smaller, with 21% of US Transaction Value
VC-backed tech M&A coming from sub-$500M deals — 0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2017 2018 2019 2020 2021 2022 2023
nearly double last year’s share and the highest since
2000.1 Smaller deals tend to occur during periods of
uncertainty as larger companies push pause on larger,
transformational deals until more clarity comes to light. Share of US VC-Backed Tech M&A Index of Troubled US VC-Backed
These challenges will pressure potential sellers and add to
the likelihood of more distressed activity. Carve-outs and with Reported Exit Price1 Tech Companies2
divestitures will likely become more prominent, as 160
companies shore up balance sheets. 65%
140
As deals are made, similar to down rounds, fewer
companies are reporting their exit price as they go for the 51% 120
“soft landing” route as to avoid a perceived negative
outcome. If capital doesn’t continue to flow into the venture 47% 100
41%
ecosystem, more companies will become “troubled” and
34% 35% 80
have to look to acquirers for rescue. Our proprietary index on 40%
troubled startups has grown 30% since 2019, recently 60
passing levels last seen at the onset of the pandemic in 33% 25%
27% 40 Companies cut
2020.1 burn in H1 2020
The share of deals reporting 20 and VC investment
an exit price tends to fall 14% doubles each year
during downturns 0

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2018 2019 2020 2021 2022 2023

Notes: 1) As of 7/31/2023. 2) Troubled companies defined as those with less than 12 months of runway and have a combined EBITDA and revenue growth rate less
than predetermined buckets based on stage. These buckets were determined using the long-term median value by stage. 3) May not sum to 100 due to rounding.
Source: PitchBook, S&P Market Intelligence, SVB proprietary data and SVB analysis. STATE OF THE MARKETS 27
Lead Authors Market Insights Team Authors

Marc Cadieux Mark Gallagher Eli Oftedal

President Co-Head of Investor Coverage Senior Researcher
mcadieux@svb.com mgallagher@svb.com Market Insights
eoftedal@svb.com

Marc Cadieux is president of Silicon Valley Bank’s
commercial banking business where he focuses on the
needs of innovation companies at all stages of
development, including the investors who back them.
Marc’s career at Silicon Valley Bank, a division of First
Citizens Bank, began in 1992. In the three decades since,
he has held a variety of top credit and sales roles serving
some of the world’s most innovative companies. Most
recently, he served as chief credit officer, appointed in
2013, and oversaw credit policy and process, credit
underwriting, loan approval and portfolio management
activities. He is a strong advocate of bank initiatives to
expand opportunities for those who are underrepresented
in the innovation economy. He serves as an executive
sponsor for the company’s employee resource group
focused on women employees.
Mark Gallagher is the co-head of the investor coverage
practice. He and his team provide tailored services,
industry insights and strategic guidance to top investors in Josh Pherigo
the innovation economy. Senior Researcher
Market Insights
Mark has served as a financial partner to venture capital
jpherigo@svb.com
firms and technology and life science companies for the
majority of his career. During his 22-year tenure with SVB,
he has been involved in a number of strategic projects and
initiatives, most recently leading the corporate venture
capital practice. He’s held numerous leadership roles
Andrew Pardo, CFA
including head of the Northeast technology banking
practice, head of business development in New England Senior Researcher
and several years running the Northeast life science Market Insights
practice. apardo@svb.com
A supporter and champion of the New England technology
community, Mark serves as a board member for BUILD
Boston and was formerly on the board of overseers for The
Mass Technology Leadership Council (MTLC).

STATE OF THE MARKETS 28

Silicon Valley Bank (SVB), a division of First-Citizens Bank, is the bank of some of the world’s
most innovative companies and investors. SVB provides commercial and private banking to
individuals and companies in the technology, life science and healthcare, private equity,
venture capital, and premium wine industries. SVB operates in centers of innovation
throughout the United States, serving the unique needs of its dynamic clients with deep
sector expertise, insights and connections. SVB’s parent company, First Citizens
BancShares, Inc. (Nasdaq: FCNCA), is a top 20 U.S. financial institution with more
than $200 billion in assets. First Citizens Bank, Member FDIC. Learn more at svb.com.

#SVB

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See complete disclaimers on following page.

©2023 First-Citizens Bank & Trust Company. Silicon Valley Bank, a division of First-Citizens Bank & Trust Company.
Member FDIC. 3003 Tasman Drive, Santa Clara, CA 95054
STATE OF THE MARKETS 29
The views expressed in this report are solely those of the authors and do not necessarily reflect the views of SVB.
This material, including without limitation to the statistical information herein, is provided for informational purposes only.
The material is based in part on information from third-party sources that we believe to be reliable but which has not been
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analysis and insights shared in this document, are independent third parties and are not affiliated with Silicon Valley Bank
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Member FDIC. 3003 Tasman Drive, Santa Clara, CA 95054

STATE OF THE MARKETS 30