“Tell me something I don’t know,” was my first reaction when reports on venture capital in 2022 hit my inbox this month. It is pretty clear by now that there was a slowdown, so what’s the point of harping on about it as we enter a new year?
The point, as often with data, is that we can now confirm what was merely intuition until Q4 actually closed: 2022 saw fewer exits and venture deals than 2021.
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If we had to retain only one fact, it would be the decline in capital invested in startups last year. According to CB Insights, whose State of Venture report is one of our sources today, total venture funding in 2022 amounted to $415.1 billion, 35% less than in 2021.
According to the PitchBook-NVCA Venture Monitor report, deal count was more stable, with 2022’s estimated deal count approaching 2021’s figure. But looking at quarterly data reveals that Q4 had the lowest deal count of 2022, which doesn’t necessarily bode well for 2023.
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One of the takeaways from these two datasets is that looking at 2022’s full-year tallies is not enough: Venture capital activity in the second half, and especially in the last quarter, didn’t hold up as well as it did during the first six months of the year.
An indicator that things worsened for capital-hungry startups as the year went by is CB Insights’ finding that global venture funding was down by 19% quarter over quarter in Q4 2022. Let’s dive in and look at what that metric means — and doesn’t — as well as other important data points.
A decline in investment activity
If venture capital deployed into startups was down in dollar volume globally, it is in large part because it declined in the U.S. — by 37% year on year, according to CB Insights. The research firm noted, however, that 2022’s $198.4 billion tally was 31% superior to 2020’s.
We all know by now that 2021 was a record year in many respects, but it’s still important to suss out because there are two ways to look at the data. On one hand, Q4 2022’s $65.9 billion global funding tally dropped 64% year on year. On the other hand, it merely represents a return to pre-COVID levels.
One of the key features of 2021 was mega-rounds, and these took a hit as well: There were only 923 in 2022, a 42% decline in deal count. But it is how much their share of total funding declined that is striking: CB Insights noted that mega-rounds accounted for only 36% of all funding in Q4 2022, their “lowest level in more than eight years.”
The decline in mega-rounds correlated to another trend: the decline in unicorn birth. This was true at a global level, even in Africa. Despite record fundraising in 2022, the continent had no new unicorns last year as mega-check writers retreated.
Why Africa had no unicorns last year despite record fundraising haul
But because oversized checks aren’t always synonymous with a healthy startup ecosystem, it is also worth looking into other variables, and in particular, exits.
Fewer exits
The Exchange has been banging on the dearth of tech IPOs for months, but we can now put a figure on it: The number of global IPOs dropped by 31% in 2022 to 716, CB Insights said.
SPAC deals, the firm added, “saw the largest drop in 2022, falling by 44% from their peak in 2021 (140) to 78.” We already suspected as much, so this wasn’t exactly a surprise.
Circle and Footprint’s aborted debuts are the final nail in the SPAC coffin
Less expected was a slight decline in M&A operations, which CB Insights said declined by 8% year on year to 10,037.
Putting another number on these liquidity events, PitchBook highlighted a record low: 2022 only saw “$71.4 billion in total exit value generated, which is a 90.5% decline from 2021’s record of $753.2 billion and the first time this figure has dipped below $100.0 billion since 2016.”
While it was to be expected that public market woes would slow down exits and late-stage deal-making, the extent of the trend is still impressive, and there could still be more to come. As highlighted by the Q4 2022 PitchBook-NVCA Venture Monitor First Look report, angel and seed activity could also “start to feel pressure” this year.
Let’s keep our seed activity expectations in check
What’s next?
As the usual warning goes, “past performance is not indicative of future results,” and this goes both ways: Perhaps venture capital will have a much better 2023 than 2022. After all, venture funds did OK last year by one key metric: their own fundraising.
According to PitchBook-NVCA, 769 funds collectively raised $162.8 billion last year — a record that made 2022 the second consecutive year in which that sum exceeded $150 billion.
While record fundraising is encouraging, it would be a mistake to think that it will directly translate into investments. As we noted in a recent piece, Lux Capital managing partner Josh Wolfe argued that much of the “dry powder” will prove to be “wet powder” that funds will need to spend on supporting their existing portfolio companies.
Still, there are reasons to be optimistic. As fellow TechCrunch+ writer Rebecca Szkutak wrote recently, “for burgeoning companies capable of building business models that reflect current conditions and rely less on venture capital to grow, the frosty environment could wind up being a good thing down the line.”
How long things will take to improve is anyone’s guess, so we will be looking forward to more data as the year progresses.