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After years of frenzy and rising valuations, investment levels and returns from US venture capital collapsed in 2022 as the global economy faltered.
The official end of the year report by Pitchbook and the National Venture Capital Association (NVCA) showed that only $71.4 billion in total exit value was generated in 2022, which is a 90.5% decline from the 2021 record of $753.2 billion and the first time this figure has fallen below the $753.2 billion mark since 2016. $100.0 billion is down.
The number of deals in 2022 for the full year was 15,852, down 14% from 18,521 in 2021. And the value of the deal was $238.3 billion, down 30% from $344.7 billion a year earlier, the report said. Still, VCs managed to raise more money for their funds than ever.
US VC exit activity was 1,208 deals worth $71.4 billion, a dramatic drop from 1,925 deals worth $753.2 billion a year earlier.
“Despite months of continued inflation, slowing growth and rising geopolitical tensions, the venture ecosystem remains optimistic that there are still tremendous opportunities for innovators to create tomorrow’s startups today,” NVCA CEO Bobby Franklin said in a statement. “While the tightening monetary environment may present new challenges, there is no wrong time to work towards a brighter future. As economic conditions fluctuate, we will undoubtedly see the next generation of entrepreneurs creating products and services that solve some of the world’s biggest challenges.”
The slowing momentum has been the main story of 2022 in the VC industry. As volatility in the public markets began to spill over into the world of private capital, the final phase of VC deals were particularly hard hit. To further illustrate this trend, public listings of venture capital-backed companies have fallen significantly, with some numbers falling to levels not seen since the early 1990s and only 14 public listings in the fourth quarter.
“While activity in earlier stages of deals and fundraising totals show remarkable resilience in 2022, the overall slowdown in annual VC activity reflects significant headwinds driven by ongoing macroeconomic factors, rising interest rates and frozen avenues for seed liquidity,” said John Gabbert, CEO of PitchBook, in a statement. “Unable to justify the skyrocketing valuations of 2021 and retreat from the ‘grow at any cost’ mindset of recent years, many investors are retreating until the ecosystem returns to a more palatable normal.”
Leave activity
The pace of exit activity for venture-backed companies continued to slow in the fourth quarter of 2022, with just $5.2 billion in value — the lowest quarterly total the NVCA has seen in more than a decade.
Acquisition activity has also decreased significantly; In the fourth quarter, approximately $763 million in total acquisition deal value was posted across 146 acquisitions, the first time the NVCA has seen this quarterly total fall below $1.0 billion in more than a decade.
Public exits from venture-backed companies have slowed to near-nonexistent levels, with just 14 public listings in Q4 and 76 throughout the year.
Fundraising is on the rise
Despite a decline in investment activity, 2022 recorded the highest amount of capital raised by venture capital funds, with $162.8 billion in 769 funds, the second consecutive year of more than $150.0 billion.
This year saw an increasing amount of capital concentrated in larger funds led by experienced managers. 72.6% of the capital was funneled into the Bay Area and New York VC ecosystems.
Despite the story of capital concentration, capital raised by emerging managers finished in the second-largest annual figure ever with $34.4 billion in pledges, and several mid-market ecosystems maintained or increased their fundraising activity in the prior year.
“Despite some softening in markets, we are pleased to partner with well-positioned emerging growth technology companies that have global ambitions where we see continued growth through a focus on both fundamentals and strategic issues,” said Victor Boyajian, global chairman of Denton’s Global Venture Technology and Emerging Growth Companies Group, in a statement. “There is no better time to grow through enhanced global client agreements, stimulating M&A and talent acquisition. Venture and other investors continue to invest confidently in those companies that are distorting markets and can benefit from the current economic conditions.”
Investment activity
On a year-over-year basis, angel and seed stage deal activity remained relatively resilient, with $21.0 billion invested in an estimated 7,261 deals.
In the fourth quarter, a total of just $10.7 billion was invested in early-stage venture capital from an estimated 1,330 deals, a dramatic decline from this year’s quarterly deal value of $23.8 billion in Q1. However, 2022 has a full-year deal value of $68.4 billion, well above the 2020 figure and approaching that of 2021, but the first two quarters of 2022 accounted for 63% of the year’s deal value.
“Private capital needs have become a priority for many organizations, with a shared goal of capitalizing on its high growth potential,” Emily Hak, general manager of private capital markets at Insperity, said in a statement. “Having access to large corporate benefit plans and other resources can support private capital efforts, especially helping to maintain operational growth and scalability.”
Late-stage VC deal activity continued to decline through 2022, with an estimated 936 deals closed in the fourth quarter totaling $13.5 billion, which is the lowest quarterly deal value we’ve seen in five years for late stage VC.
Non-traditional investors are slowing their deployment of capital into VC, with just $24.1 billion in deal value involving non-traditional investors in Q4 – the lowest quarterly value seen since 2019.
“Capital raising across the corporate landscape is likely to remain subdued in the first half of the year given challenging near-term prospects for both the national economy and markets,” said Melissa Smith, head of specialty industries for midmarket banking at JPMorgan. chase. Commercial Banking, in a statement. “Valuations are correcting and the founders need to balance growth plans against liquidity growth. At the same time, private companies can take steps to best position themselves before raising capital and prepare for a turnaround in the exit environment. JP Morgan has a long history of advising clients through economic cycles and various market conditions. The breadth of our platform gives us unique perspectives on how best to navigate the landscape.”
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