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After years of frenzy and soaring valuations, U.S. venture capital investment levels and returns came crashing down in 2022 as the world economy faltered.
The official year-end report by Pitchbook and the National Venture Capital Association (NVCA) showed that 2022 saw only $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.
The deal count in 2022 for the full year was 15,852, down 14% from 18,521 in 2021. And deal value 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.
U.S. VC exit activity was 1,208 deals valued at $71.4 billion, down dramatically from 1,925 deals valued at $753.2 billion a year earlier.
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“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 CEO Bobby Franklin, in a statement. “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.”
Slowing momentum was 2022’s primary narrative in the VC industry. As volatility in the public markets started to spill into the world of private capital, late-stage VC deal activity, in particular, got hit hard. 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.
“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, CEO of PitchBook, in a statement. “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 the NVCA 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 the NVCA saw 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.
Fundraising activity rises
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.
“Despite some softening in the markets we are excited to work with well-positioned emerging growth tech companies that have global aspirations where we see continued growth through attention to both fundamentals and things strategic,” said Victor Boyajian, global chair of Dentons Global Venture Technology and Emerging Growth Companies Group, in a statement. “There is no better time to grow through enhanced global customer arrangements, accretive M&A and talent acquisition. Venture and other investors remain confident in investing in those companies that disrupt in the markets and can take advantage of current economic conditions.”
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.
“Private capital needs have become a priority for many organizations, with a common goal to meeting high growth potential,” said Emily Hak, managing director of private capital markets at Insperity, in a statement. “Having access to big company benefit plans and other resources can support private capital efforts, and most importantly can help maintain operational growth and scalability.”
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.
“Capital raising across the venture landscape is likely to remain subdued in the first half of the year given the challenging near-term outlook for both the national economy and markets,” said Melissa Smith, head of specialized industries for middle market banking at JPMorgan Chase Commercial Banking, in a statement. “Valuations are correcting, and founders need to balance growth plans with liquidity runway. At the same time, private companies can take steps to best position themselves ahead of raising capital and to prepare for a turn in the exit environment. J. P. 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.”