News & Analysis

driven by the PitchBook Platform
Venture Monitor

5 big trends shaping VC investing today

The loss of crossover investors and dismal fund performance are reminders that investors and LPs may continue to look elsewhere for returns.

US startups have progressed precariously through 2023, and several signs point to more trouble ahead if dealmaking and fundraising conditions continue to tighten and exit markets remain closed, according to the Q2 2023 PitchBook-NVCA Venture Monitor.

While sharp declines in both deal value and count have stabilized somewhat in recent quarters, factors including the loss of crossover investors and dismal fund performance are reminders that investors and LPs may continue to look elsewhere for returns.


The flood of IPOs in 2021 was far larger than any in the past decade. And the subsequent drought has been much longer than usual, leading to a backlog of IPOs for US VC-backed companies.

For 17 months running, the number of IPOs has fallen far short of what would be expected based on long-term trends.

But VCs still need liquidity, which has contributed to acquisition activity—now the source of most exits both in terms of the number of deals and the value generated for investors. The median VC-backed acquisition has climbed to $69.5 million, a four-year high, more evidence of the liquidity push. For corporations, the current environment is a prime opportunity to acquire discounted startups.


VC fund returns turned sharply negative in the back half of 2022, a fact that will weigh heavily on future fundraising efforts. The one-year rolling IRR for the asset class stood at minus 16.8% in Q4 2022, down from a peak of 80% in Q2 2021.

These are largely paper returns, and the reality is that many of the purported gains made by VC funds in 2021 never made it to LPs in the form of distributions. Last year, LPs contributed about $92 billion to VC funds and received $43.3 billion in 2022, according to PitchBook data. The resulting gap, a negative net cash flow of $49 billion, is far larger than the $7.9 billion in positive cash flow that LPs received in 2021.

Still, the outsized inflows into US VC funds have put dry powder at a record high of $279.8 billion. More than half of that money is in mega-funds with more than $500 million. PitchBook analysts note that these investors will want to see headwinds subside and better access to liquidity before mega-rounds can pick up again.


Nontraditional investors have participated in about 72.9% of US VC deal value this year, a decline of nearly 10 percentage points from 2021. Their participation as a share of deal count came in at 30.5%, down from 38% in 2021.

Not all tourist investors are in retreat relative to the broader market. Corporate VCs have continued to participate in roughly a quarter of deals in the market, and their participation rate as a share of deal value swelled to 64.1%. This data is further proof that the cohort is increasingly committed to startup investing, even in lean times.

Crossover investors, by contrast, took part in just 172 US VC deals in Q2, the lowest quarterly tally since 2017. PE firms’ participation rate fell nine percentage points, the sharpest drop of any crossover investor type.


US VC deal sizes have converged across stages due in part to the delayed impact of market forces on the earlier stages.
That compression has resulted in remarkably similar median deal sizes at the late stage and early stage. Late-stage companies are in a better position to delay fundraising if they raised large rounds in 2021 or 2022, and they have a greater ability to cut costs from areas like marketing than early-stage peers, PitchBook analysts note.

Another oddity of this period of time is the continued growth in seed deal sizes and valuations, the only stage where growth has continued.

These trends demonstrate the complex relationship between the broader equity market and VC-backed businesses, and how overarching narratives often fail to capture the nuanced reality of dealmaking.


Just 19% of US VC deals were recorded from startups headquartered in the San Francisco Bay Area this year. The deal count decline is the continuation of a decadelong trend that has accelerated since 2021.

But on a deal value basis, San Francisco’s share spiked to 42% of the national total. The Bay Area is home to a large cohort of generative AI startups as well as established unicorns like Stripe, which closed a $6.8 billion round in May—nearly a fifth of the region’s total so far this year.

Featured image by cosma/Shutterstock

Join the more than 1.5 million industry professionals who get our daily newsletter!