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U.S. Venture Capital Activity Slows in Q3 Amid Market Uncertainty

Deal Value and Exit Activity Fall to Pre-Pandemic Levels While Fundraising Reaches a New Annual High

SEATTLE, October 13, 2022-- The U.S. venture capital (VC) ecosystem is showing more signs of distress in response to ongoing economic headwinds, according to the Q3 2022 PitchBook-NVCA Venture Monitor, the authoritative quarterly report jointly produced by PitchBook and the National Venture Capital Association (NVCA) with support from Insperity and J.P. Morgan.

Deal counts fell across all stages for the second consecutive quarter after reaching a record high in Q1 2022 and total money invested reached a nine-quarter low, cementing a tone of investor hesitancy and increased focus on business fundamentals. This pullback was especially pronounced at the late stage, where nontraditional investors – the largest drivers of mega deals and the overall growth seen at the top of the market – slowed investment in VC-backed startups. Aside from several outsized deals in Q3, annual exit activity has also been lethargic, with 2022’s exit value on pace to fall below $100 billion for the first time since 2016.

In stark contrast to deal and exit activity and value, VC fundraising has already reached a new annual record in the first three quarters of the year. With over $290 billion in dry powder, by far the largest amount that has ever been stored in VC funds, GPs have more than enough capital to support innovative startups through their venture lifecycle in the coming years despite the tumultuous economic environment.

“The VC slowdown narrative that has been pervasive in the market this year has finally materialized in the data, with nearly every metric aside from fundraising falling sharply in Q3,” said John Gabbert, founder and CEO of PitchBook. “The VC ecosystem, however, has shown remarkable resiliency in the face of continued economic headwinds, raising record levels of capital and closing an unexpectedly high number of deals. In many ways, 2021 was an outlier year, and the VC market is now returning to pre-pandemic levels and long-term trends of steady growth.”

“The startup ecosystem’s slowdown foreshadowed in the first half of 2022 has become evident, with investors and startups adapting to the softening in deal and exit activity,” said NVCA President & CEO Bobby Franklin. “However, the long-term outlook for entrepreneurs remains strong, with cumulative dry powder at an all-time high. This also comes as the current Congress has approved hundreds of billions of dollars of public money to help build the entrepreneurial ecosystem of the future.”

HIGHLIGHTS:

Investment Activity

• VC investment totaled just $43 billion across an estimated 4,074 deals in Q3 2022, a nine-quarter low for deal value. Estimated deal counts have fallen nearly 20 percent from the quarterly high in Q1 2022 – the lowest count since Q4 2020.
• Aside from corporate VC (CVC) investors, nontraditional investor participation fell faster than the broader venture market in 2022. PE firms have participated in just 48.3 percent of deal value in 2022 and asset managers just 34.9 percent compared to 58.5 percent and 43.6 percent in 2021, respectively. Meanwhile, CVCs have participated in 25.6 percent of VC deals year-to-date, as well as nearly 45.3 percent of deal value; both figures are in line with past yearly highs.
• Total dollars invested in late-stage VC decreased by 48.3 percent from the Q2 figure of $48.1 billion and set a record eleven-quarter low. The median late-stage deal size in Q3, $10.0 million, decreased by a third from the 2021 full-year figure of $15 million.

Fundraising Activity

• U.S. VC fundraising reached a new annual high of $150.9 billion in Q3, surpassing last year’s previous record and taking the 21-month fundraising total above $298.1 billion. We are beginning to see momentum atrophy, however, with just $29.4 billion in fundraising added to the dataset since our Q2 report, the lowest quarterly total this year.
• In 2022, 79 percent of the record fundraising has gone to funds led by established managers. Emerging managers suffer disproportionately during economic downturns, as LPs are less likely to increase their VC allocations and commit to GPs with limited or no historical track records.
• Nearly 2,600 VC funds have been closed since the beginning of 2020, with the majority of these still within their new investment period. That is roughly the same number the US market saw closed from 2006 through 2015.

Exit Activity

• With just $14 billion in exit value generated across an estimated 302 exits in Q3, this year’s total exit value is in danger of falling below $100 billion for the first time since 2016.
• 2022 has produced only 59 public listings, just one year after a record 303 VC-backed public listings generated $670 billion in exit value. The frozen IPO market continued in Q3, with just five companies exiting via traditional IPOs this quarter.
• SPACs – once pervasive in the market – have all but disappeared, with only three SPACs completing listing this quarter, a far cry from the peak of 281 listings in Q1 2021. Many of the remaining SPACs that have yet to complete acquisitions are nearing their two-year time limit, at which point shareholders can opt to have their investment returned.

Click here to download the full report.

Venture Monitor Q3 Webinar – November 8, 2022 from 10 – 11 am PST

PitchBook and NVCA are hosting the webinar in partnership with Insperity and J.P. Morgan.

Click here to register.

About PitchBook

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.

Contact:
Sabrina Fang
Phone: 703-283-2091
Email: sfang@nvca.org