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Venture Capital Momentum Slowed in 2022 as VC-Backed Exit Market Freezes
Exit activity and late-stage dealmaking decline as fundraising values hit new record highs
SEATTLE, January 12, 2023-- After years of frenzied investments and soaring company valuations, venture capital (VC) investment levels are readjusting as businesses assess the current economic landscape, according to the Q4 2022 PitchBook-NVCA Venture Monitor, the authoritative quarterly report jointly produced by PitchBook and the National Venture Capital Association (NVCA) with support from Insperity, J.P. Morgan, and Dentons.
Slowing momentum was 2022’s primary narrative in the VC industry. One of the most striking indicators was the lethargic pace of exits, with just $71.4 billion in total exit value generated, which is a 90.5% decline from 2021’s record of $753.2 billion and the first time this figure has dipped below $100.0 billion since 2016. As volatility in the public markets starts to spill into the world of private capital, late-stage VC deal activity, in particular, has been heavily impacted. Further illustrating this trend, public listings of VC-backed companies are down significantly, with some figures dipping to levels not seen since the early 1990s and just 14 public listings occurring in Q4.
“Despite months of persistent inflation, slowing growth, and rising geopolitical tension, the venture ecosystem remains optimistic that there is still tremendous opportunity for innovators to create tomorrow’s startups today,” said NVCA President and CEO Bobby Franklin. “While the tightening monetary environment may present new challenges, there is no wrong time to work toward a better tomorrow. As economic conditions fluctuate, we will no doubt observe the next generation of entrepreneurs creating products and services that solve some of the world’s biggest challenges.”
“Although earlier stage deal activity and fundraising totals show remarkable resiliency in 2022, the overall slowdown in annual VC activity reflects the sizable headwinds presented by ongoing macroeconomic factors, rising interest rates and frozen avenues for startup liquidity,” said John Gabbert, founder and CEO of PitchBook. “Unable to justify the sky-high valuations seen in 2021 and retreating from the ‘growth-at-all-costs’ mindset seen in recent years, many investors are pulling back until the ecosystem returns to a more palatable normal.”
• The pace of exit activity for venture-backed companies continued to slow in the fourth quarter of 2022, with only $5.2 billion in value exited – the lowest quarterly total we have observed in over a decade.
• Acquisition activity has also declined significantly; Q4 posted roughly $763 million in total acquisition deal value across 146 acquisitions, the first time we’ve seen this quarterly total fall below $1.0 billion in over a decade.
• Public exits of VC-backed companies have slowed to almost nonexistent levels, with just 14 public listings occurring in Q4 and 76 over the entire year
• Despite a decline in investment activity, 2022 recorded the highest amount of capital raised by venture funds, with $162.8 billion closed across 769 funds, the second consecutive year exceeding $150.0 billion.
• This year saw an increasing amount of capital concentrated in larger-sized funds led by experienced managers within 72.6% of capital funneled into the Bay Area and New York VC ecosystems.
• Despite the narrative of capital concentration, capital raised by emerging managers concluded in the second-largest annual figure on record with $34.4 billion in commitments, and several mid-market ecosystems sustained or increased their fundraising activity over the prior year.
• On an annual basis angel- and seed-stage deal activity remained relatively resilient, with $21.0 billion invested across an estimated 7,261 deals.
• Q4 saw just $10.7 billion total dollars invested in early-stage VC across an estimated 1,330 deals, dramatically falling from this year’s quarterly deal value high of $23.8 billion in Q1. However, 2022 boasts a full-year deal value figure of $68.4 billion, well ahead of the 2020 figure and nearing that of 2021, but the first two quarters of 2022 accounted for 63% of the year’s deal value.
• Late-stage VC deal activity has continued its descent through 2022, with an estimated 936 deals closed in Q4 totaling $13.5B, which is the lowest quarterly deal value we’ve seen for late-stage VC in five years.
• Nontraditional investors are slowing their deployment of capital to VC, with Q4 showing just $24.1 billion of deal value involving nontraditional investors – the lowest quarterly value observed since 2019
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company’s data and analysis are available through the PitchBook Platform, industry news, and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York, London, and Hong Kong and serves nearly 100,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as a subsidiary.
About National Venture Capital Association
The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the US venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.