Severe contraction for US VC in Q1 leaves the market vulnerable
April 8, 2023
The US venture capital market had a rough first quarter, and not just because of the collapse of Silicon Valley Bank.
Just $5.8 billion in exit value was generated, a figure that is only 2.2% of the quarterly high from the past two years and the lowest quarterly value since the global financial crisis.
Dealmaking didn't fare much better. Deal value fell more than 60% from its peak in Q4 2021. Last quarter's $37 billion total also includes Stripe's $6.5 billion round, which wasn't even raised for the company's growth.
In 2022, the bright spot of the industry was fundraising, which set an annual record. That's no longer the case. Just $11.7 billion was raised in Q1, setting the year on a path toward the lowest annual total since 2017.
We noted in a recent note that the SVB collapse was just another pressure the market didn't need, and while that looks to be true, it's difficult to point back to the bank failure as the reason the venture industry is struggling. The compression of the market was well underway before the collapse, and in fact was a major piece of the failure.
The pressures mounting in 2022 haven't yet caused company bankruptcies at scale, nor a major increase in down rounds—"yet" being the operative word.
If Q1 portends the 2023 market, and we believe it does, VC-backed companies needing to raise capital are going to be looking at a formidable market. Investor caution has led to high benchmarks for raising, and even companies that have continued along their growth path won't be able to raise at the multiples they'd hoped for, leading to smaller valuation step-ups and increased dilution relative to rounds of the past.
A reset is what the venture market needed. The $346 billion in deal value and $768 billion in exit value recorded in 2021 were not sustainable levels. However, the quick, steep contraction has left a high number of companies vulnerable, especially at the late stage and within venture growth—both areas of the market that have become heavily reliant on crossover investors and a fast-moving IPO market.
More for Q1 VC data, you can access the key underlying datasets from our upcoming PitchBook-NVCA Venture Monitor: Download the First Look
Just $5.8 billion in exit value was generated, a figure that is only 2.2% of the quarterly high from the past two years and the lowest quarterly value since the global financial crisis.
Dealmaking didn't fare much better. Deal value fell more than 60% from its peak in Q4 2021. Last quarter's $37 billion total also includes Stripe's $6.5 billion round, which wasn't even raised for the company's growth.
In 2022, the bright spot of the industry was fundraising, which set an annual record. That's no longer the case. Just $11.7 billion was raised in Q1, setting the year on a path toward the lowest annual total since 2017.
We noted in a recent note that the SVB collapse was just another pressure the market didn't need, and while that looks to be true, it's difficult to point back to the bank failure as the reason the venture industry is struggling. The compression of the market was well underway before the collapse, and in fact was a major piece of the failure.
The pressures mounting in 2022 haven't yet caused company bankruptcies at scale, nor a major increase in down rounds—"yet" being the operative word.
If Q1 portends the 2023 market, and we believe it does, VC-backed companies needing to raise capital are going to be looking at a formidable market. Investor caution has led to high benchmarks for raising, and even companies that have continued along their growth path won't be able to raise at the multiples they'd hoped for, leading to smaller valuation step-ups and increased dilution relative to rounds of the past.
A reset is what the venture market needed. The $346 billion in deal value and $768 billion in exit value recorded in 2021 were not sustainable levels. However, the quick, steep contraction has left a high number of companies vulnerable, especially at the late stage and within venture growth—both areas of the market that have become heavily reliant on crossover investors and a fast-moving IPO market.
More for Q1 VC data, you can access the key underlying datasets from our upcoming PitchBook-NVCA Venture Monitor: Download the First Look
Kyle Stanford, CAIA
Senior Analyst, US Venture Lead
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