The PitchBook VC Dealmaking Indicator leverages deal-level data to quantify how startup-friendly, or investor-friendly the capital raising environment is. The Indicator incorporates PitchBook’s deal term, deal attribute, fundraising, and deal flow data to compose an indicator which compares early-stage, late-stage, and the new venture growth stage deal dynamics. (For in-depth analysis, click here.)
Higher Indicator values reflect a more investor-friendly dealmaking environment, and lower values a more startup-friendly one. Below we see that since 2010, the scales have tipped decidedly in favor of startups. From 2010 to 2015, late stage deals were markedly more investor friendly than early stage deals, but since 2015, terms and deal characteristics converged and we saw a race to startup friendliness at all stages after midyear 2020. This trend has sharply reversed starting in 2022, largely driven by the expected demand for capital from startups seeking additional funding after having raised large rounds over the prior two years.
The chart below shows time-series data for each feature that comprises the overall indicator score, which provides insight into what is driving the model's output. Halfway through Q2 2022, in the early stage, we have seen valuation step ups fall sharply as they hit levels not seen since Q4 2020. We also note that, while both supply and demand of capital have increased, demand has increased significantly relative to supply of capital. In the later stage, capital demand has outstripped supply the most of all stages. There has also been an increase in the use of cumulative dividends and participating preferred shares across stages as investors increase downside protections.
Starting in 2023, we made an adjustment to the demand and supply of capital metric. Read about the new methodology here.
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The PitchBook VC Dealmaking Indicator is a proprietary methodology developed by PitchBook for its own sole use, unless permission has been otherwise granted.
Featured image by Drew Sanders/PitchBook News