Mixed bag for U.S. Startup Ecosystem as Market Outlook Remains Uncertain

Deal count and fundraising by VC funds remained strong in Q2 while deal values across all stages and VC-backed public listings were hit harder by the economic downturn

July 14, 2022

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

SEATTLE – Despite an uncertain macroeconomic environment, U.S. venture capital (VC) deal activity in the first half of 2022 was strong, according to the Q2 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.

While deal count remained strong, when compared with the highs of 2021, deal value declined significantly across all stages. The mega-deals that defined 2021 slowed in the first half of 2022 as investors took a more cautious approach. With more than $290 billion in dry powder, and nearly 3,000 funds closed since the beginning of 2019, the VC industry is likely to see the trends of steady deal count but readjusted pricing continue until certainty returns to the market.

VC-backed exit activity in Q2 2022 largely mirrored Q1. Corporate M&A exit count activity remained steady, but the biggest change was the precipitous decline in traditional IPOs. SPAC mergers also declined in Q2, bringing the total number of public listings in the first half of 2022 to 42. This decline is most concerning for the potential for billion-dollar exits, as IPOs have traditionally been the main source of liquidity for private companies operating at that scale. This decline is also concerning because VC-backed IPOs have historically had an outsized positive impact on the U.S. public markets.

“The second quarter of 2022 brought an expected continuation of market tightening in some parts of the U.S. venture ecosystem,” said NVCA President and CEO Bobby Franklin. “However, the industry’s record dry powder continues to fuel critical innovation that is addressing the country’s important needs. The venture industry’s long-term view of investing, even during uncertain fiscal times, is further proof it is a reliable economic engine with an eye toward funding the next generation of great American companies.”

“As the market continues to react to volatility over the past six months, the venture ecosystem demonstrates strength as dry powder reaches new heights and fundraising levels surpass more than $100 billion for the second consecutive year,” said John Gabbert, founder and CEO of PitchBook. “Exits remain extremely low while late-stage companies act with caution as a result of bearish public market activity. There are still uncertainties as to what to expect in the second half of the year, however, market indicators show resilience to weathering the potential economic downturn.”


Investment Activity

  • Seed-stage investments are generally furthest from the public market and have been relatively insulated more than the rest of the industry from economic volatility. The Q2 estimated total seed deal count is near the highest figure in the dataset.
  • Q2 early-stage VC saw additional pressure affecting deal activity with roughly $16 billion invested across an estimated 1,340 deals. The quarter’s total deal value dropped well below the record quarterly highs set in 2021, but is still ahead of pre-pandemic levels.
  • A substantial decline in late-stage deal count has yet to surface in the data, but average deal size and valuation have fallen significantly from recent highs.

Fundraising Activity

  • U.S. VC fundraising has exceeded $100 billion for the second consecutive year. A strong showing from established managers in the first half of the year has pushed capital raised to a near record.
  • Through six months, we tracked $121.5 billion closed across 415 funds, making 2022 already the second-highest year on record for U.S. VC fundraising and the second consecutive year this total has exceeded $100 billion.
  • First-time fundraising has had a more difficult start to the year, raising just $7.6 billion after a record $16.8 billion was raised by new managers in 2021.

Exit Activity

  • Q2 2022 saw very similar exit activity to Q1 as counts tracked to the historical pace of 1,100 annual exits that we saw from 2014-2020, with exit value lagging the last three years.
  • IPOs continued to be essentially nonexistent for VC-backed companies in 2022, with only 22 closed during the first half of the year, relative to 183 in 2021, and 108 in 2020.
  • Corporate M&A exit count remained steady with more than 200 closed in Q2. With public listings halted, private companies may be looking to strategic acquirers as a more viable liquidity option, albeit with exit value expectations readjusted to align with overall repricing happening across the ecosystem.

Click HERE to download the full report.

Venture Monitor Q2 Webinar – August 18, 2022 from 10 – 11 am PDT

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 more than 70,000 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.