VCs don shades even as tech storm clouds gather

UVC rays. triumph of hope over experience is on full display in Los Angeles, where some of venture industry’s biggest titans have gared for an annual confab. Entrepreneurs, ir backers, and ir backers’ backers are discussing sunny days, unfazed by a regulatory probe into golden child of artificial intelligence, OpenAI. But less than a year after a series of bank collapses that directly impacted technology sector, nascent companies are struggling to find ways to fund mselves. Efforts by big tech firms to bolster industry are making matters worse.

As is typical of Hollywood-based event hosted by Upfront Ventures, celebrities such as musicians Ly Gaga and Katy Perry took stage to discuss ir launch of consumer brands. Much of programming at conference, now in its 11th year, was a throwback. Panels dedicated to cryptocurrency took top billing. modest amount of humility, like a discussion on “VC Winter," was tempered by comments like Index Ventures investor Shardul Shah’s claim that “ sun is shining outside of AI."

problems stem from a funding snap. A year ago, a main backer to industry, Silicon Valley Bank, went out of business. In 10 years prior to 2022, investment in private U.S. startups increased eightfold. In 2023, VC funds in U.S. drummed up a meager $67 billion from ir backers, a six-year low, according to data provider PitchBook. An anemic market for initial public offerings has me it harder for backers to exit investments, and dealmaking has been feeble. Last year just 1,738 venture-backed startups were acquired globally, lowest number since 2015, according to Crunchbase.

Companies that have promised to reshape online interactions through AI have put a little glow over business. Last year, Microsoft me an investment in OpenAI, which validated industry and bread life into prospects for venture firms that are building similar companies. And yet U.S. Securities and Exchange Commission’s inquiry into OpenAI, reported by Wall Street Journal, suggests a sophisticated partner doesn’t necessarily stop a company from experiencing growing pains.

Worse, hype from giants like Microsoft is lifting valuations such that best companies could become out of reach for smaller investment players who are scrambling to keep ir own funds afloat. Entrepreneurs have plenty of optimism, but donning sunnies doesn’t make wear outside any better.