In Q1 2023, U.S.-based enterprise SaaS startups secured $13.9B in venture funding across 363 deals. Funding remained robust for the enterprise SaaS sector last year, second only to the record-setting totals of 2021. Funding for U.S. enterprise SaaS startups declined by 18.4% from $76.5B deployed in 2021 to $62.4B in 2022. Despite the dip, funding for the sector was 83.4% higher than the $34B deployed in 2020. Considering the market volatility and geopolitical instability, funding for the industry has remained stronger than anticipated. Judging by last year's tally and the recent trend, the sector's funding should remain strong this year, showing resilience to the VC funding pullback. Deal value increased by 18.5% QoQ in the recent quarter, largely due to Stripe's $6.5B funding round. Without Stripe's round, funding would have dropped 37% QoQ. CloudKitchens and Anduril were the other two large rounds that closed in the recent quarter. Alumni Ventures, Tiger Global, and Andreessen Horowitz were the most active investors in the sector. Enterprise SaaS startups snatched away nearly 90% of the total $15.9B funding deployed in software startups. Software startups remain a popular investment destination amongst investors and continue to take up a majority share of the funding, representing 42% of the total funding deployed in the quarter across all sectors. Consumer product and services and pharma and biotech sectors nabbed the second and third highest share of the financing, raking in 12.1% and 11.1% of the total funding deployed, respectively.
Within the enterprise SaaS sector, enterprise resource planning (ERP) startups raked in over a third of the funding last year, taking up 37.1% of the deal value and 36.2% of the deal count. Customer relationship management (CRM) startups nabbed nearly a third of the deal value (28.1%). Startups across sub-sectors analytic platforms (AP), supply chain management (SCM), knowledge management system (KMS), and other application software (OAS) raked in 11.40%, 10.10%, 5.40%, and 7.90% funding, respectively. The advancement of AI solutions is poised to greatly impact the enterprise SaaS sector. Short-term implications include the impact on research, content creation, enterprise search, business insights, and lower barriers to entry. Due to AI's perceived potential to impact the sector, several startups are reimagining their products with AI at its core rather than having AI as an added functionality. As a result, several enterprise SaaS and B2B software-focused VCs are mainly investing in startups with AI at their core. Index Ventures' partner Erin Price-Wright believes that "going forward, it's going to be very difficult to raise any cash as a B2B or enterprise SaaS company if you don't have an A.I. strategy." She adds, "Within a decade, A.I. will be a core component of every piece of application software that's built and shipped." |
