VC deal activity fell in 2022, signaling tough times ahead

Market headwinds continue to dog startups chasing venture backing. That’s the top-level finding of a new PitchBook report that looked at VC trends toward the end of 2022, specifically Q4, including investments made at the seed, late-stage and nearing-the-exit levels.

First, the good news: “On an annual basis, angel- and seed-stage deal activity remained relatively resilient in 2022, with $21.0 billion invested across an estimated 7,261 deals,” the report said. Last year set an annual record for capital raised, in fact, with $162.6 billion closed across 769 funds — the second consecutive year to exceed $150 billion.

But the year was ultimately mixed. Q4 2022 marked the fourth consecutive quarter of declining deal counts while exit activity for the entire year fell to $71.4 billion — the first time the figure dipped below $100 billion since 2016. Acquisition volume also took a nosedive, with Q4 posting only $763 million in total acquisition deal value — the lowest quarterly value in more than a decade.

“Public exits of VC-backed companies have slowed to almost nonexistent levels, with just 14 public listings occurring in Q4, demonstrating how drastically institutional-investor appetite has been affected by rising interest rates and volatile macroeconomic factors,” the authors of the PitchBook report wrote.

Why the instability? PitchBook blames a variety of factors, including nontraditional investors slowing their capital deployment to VC amid less attractive risk/return profiles. According to the report, relative to 2021, the upside potential for VC-backed startups fell precipitously in 2022, which turned many investors away from the space.

VC deal activity fell in 2022, signaling tough times ahead by Kyle Wiggers originally published on TechCrunch