RESEARCH TRIANGLE PARK – Startups are making fewer deals, “exits” are down and a recent surge in fund raising by venture firms has slowed drastically, says a new report from PitchBook.
“Deal activity across all stages is showing more signs of distress, recording the third consecutive decline in completed deals,” PitchBook, which tracks the venture capital industry, notes in new data released today.
“Estimated deal count in Q3 (4,074) is off by almost 20% from the quarterly record high recorded in Q1 (5,049) and is the lowest count seen in any quarter since Q4 2020 (3,364).”
The PitchBook report information “First Look” disclosed today comes ahead of a more detailed look at the industry – including state-by-state data – to be issued next week.
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Overall, the VC industry is being dragged down by economic headwinds across the world: inflation, the war in Ukraine, and the looming threat of a recession.
“Q3 saw $43.0 billion invested in VC deals across all stages, a nine-quarter low, cementing a tone of investor hesitancy and increased focus on business fundamentals amid the global economic downturn, even if the numbers remain high on a historical basis,” PitchBook says.
Fewer “exits,” IPOs
The state of the economy such as falling stocks on Wall Street also is hammering VC-focused “exit” activity: mergers and acquisitions as well as going public.
“With just $14.0 billion in exit value generated across an estimated 302 exits in Q3, there were few bright spots for the VC exit market,” PitchBook reports. “These figures are in line with exit activity expectations around 2014 and well off the highs seen in
2021—$266.8 billion in exit value was generated in Q2 that year. ”
Startups known as unicorns that are valued at $1 billion or more such as Raleigh-based Pendo also face a tough climb in achieving an IPO.
“Few options remain for the growing group of unicorns, as 2022 has produced only 60 public listings, just one year after a record 303 VC-backed public listings generated $670.0 billion in exit value,” Pitchbook explains.
“With the expectation that the current slow environment will remain, this year’s total exit value is in danger of falling below $100 billion for the first time since 2016.”
A bright spot fades
VC firms up until recently have had an exceptional year for fund raising, reaching a record total of $150.9 billion, topping last year’s record of some $148 billion. But PitchBook says the surge has ended.
“Given public market turbulence and frozen avenues for liquidity, we expected LPs [limited partners] to be concerned about their overexposure to this asset class and the potential for timely returns negatively impacting fundraising activity,” PitchBook says.
“Entering the second half of the year, we are finally beginning to see that momentum atrophy, as just $29.4 billion in fundraising was added to the dataset since our Q2 report, the lowest quarterly total this year.”
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