The U.S. venture capital (VC) deals are slowing in the face of ongoing economic headwinds, according to the Q3 2022 PitchBook-NVCA Venture Monitor.
The quarterly report, produced by PitchBook and the National Venture Capital Association (NVCA), said deal counts fell across all stages in the third quarter. Deal counts dropped for the second consecutive quarter after reaching a record high in the first quarter of 2022. Further, the
total money invested reached a nine-quarter low this past quarter. 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.
In addition, 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. Specifically, VC investment totaled just $43 billion across an estimated 4,074 deals in the third quarter. Estimated deal counts have fallen nearly 20 percent from the quarterly high in the first quarter and are at the lowest count since the fourth quarter of 2020.
However, in stark contrast to these downward trends, VC fundraising has already reached a new annual record through the first three quarters of the year. The industry has raised over $290 billion in “dry powder,” the largest amount that has ever been stored in VC funds.
“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,” John Gabbert, founder and CEO of PitchBook, said. “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.”
U.S. VC fundraising reached a new annual high of $150.9 billion in the third quarter, surpassing last year’s previous record. About 79 percent of the record fundraising has gone to funds led by established managers.
“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,” NVCA President and CEO Bobby Franklin said. “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.”
Nearly 2,600 VC funds have been closed since the beginning of 2020. That is roughly the same number the US market saw closed from 2006 through 2015.
Additionally, 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 the third quarter, with just five companies exiting via traditional IPOs this quarter. SPACs have all but disappeared, with only three SPACs completing listing this quarter. That is a far cry from the peak of 281 listings in the first quarter of 2021.