Over a third of venture investors aren’t changing their investment strategies despite rising inflation across the globe, according to a survey conducted by PitchBook and the Web Summit tech conference.
Globally, rising inflation and interest rates have coincided with a slowdown in VC fundraising; PitchBook data shows that US VC deal count was down nearly 20% from Q1 to Q3, while Europe saw a more than 37% drop in the same time period. On Wednesday, the US Federal Reserve bumped up interest rates by another 0.75 percentage points to between 3.75% and 4%, the highest since January 2008.
Nevertheless, the joint survey shows that of 142 global VC firms interviewed at the conference in Lisbon this week, 35% said that rising inflation has not resulted in any strategy change, and only 8% reported that they have significantly pulled back on investments.
“There’s so much dry powder that needs to be deployed, it’s no wonder that inflation is having such little impact on investments,” Paddy Cosgrave, co-founder and CEO of Web Summit, said. “The majority of dry powder available can’t possibly create the type of value that is needed. Everybody is chasing something that doesn’t exist anymore, which is a 10-year return.”
Some 47% of survey respondents said that they had made between one and five investments over the past 12 months, compared with 31% of respondents last year. And focus isn’t just on shoring up exiting portfolio companies either, with 73% of investors reporting allocating over two-thirds of their current fund to new investments.
While inflation appears to be having a minimal impact on investment strategies, the same cannot be said of geopolitical events, which have been increasing market volatility. Only 21% of respondents said that geopolitical events have had no effect on their investment strategies, compared to 47% of participants in 2021. When asked if these events strongly impact strategy, 11% agreed, up from 2% last year.
However, the energy crisis stemming from the war in Ukraine has pushed more investment toward renewable energy. Two-thirds of those surveyed said that they are increasing their focus on technologies that address climate change and energy security. So far this year, a total of $17.7 billion has been invested in the climate tech sector across 594 deals, according to PitchBook data.
While energy may be getting more attention, startups focusing on Web3 could be in for leaner times. In light of the recent crash in cryptocurrencies, 46% of investors claimed to be slowing their investments or pulling out entirely from Web3.
Featured image Joel Calheiros/Shutterstock
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