Venture Monitor
Dealmaking decline levels off: US VC trends in 5 charts
April 14, 2023
Later-stage companies had a rough run in Q1 with VC capital in short supply. The sluggish exit market continues to tie up LP capital, making investors wary in an unforgiving tech market.
But the dealmaking decline is leveling off from 2022—a sign that the market could soon regain its footing—and seed valuations are ticking up. These five charts take snapshots of what's happening across the venture market in today's bear market, spotlighting insights from our Q1 2023 PitchBook-NVCA Venture Monitor.
The pace of decline in total VC deal value appears to be slowing as both deal value and count level off. VC-backed companies raised $37 billion in Q1 across an estimated 2,856 deals. Late stage deals fell for the seventh straight quarter, and even angel and seed-stage deals declined sharply, hitting a 10-quarter low, despite showing resilience through 2022.
It's especially tough for B2B tech startups, as "every contract is that much harder to earn," said Tasneem Dohadwala, founding partner of Excelestar Ventures. "Therefore, when investors are sizing up these companies on a revenue basis, they don't look as potentially compelling as they could look as if the economic times were not as tight."
The number of late-stage VC deals over $50 million in later-stage companies is on track to reach less than half of 2022's count, as growth-stage companies have been hit the hardest by the tough fundraising environment. In Q1 2023, 55 late-stage companies closed deals over the $50 million-mark, making up around 7.7% of all such deals, compared to an average 14.6% last year.
Y-Combinator ended its late-stage focused fund last month to focus on its accelerator. Until the exit market picks back up, growth-stage companies whose runways are running out are staring down the gauntlet of a tough year of down rounds and "cram-down" financing.
Mega-deals—venture deals over $100 million—were riding high through 2021 before they started dropping off in mid-2022. Q1 2023 roughly brings them back in line with 2020 numbers, closing 18 mega-deals in early-stage, 19 in late-stage and 13 in venture growth.
The biggest mega-deal by a country mile in venture last quarter was Stripe's $6.5 billion Series I from investors including Andreessen Horowitz, Baillie Gifford and Founders Fund. But Stripe's path to its latest down round hasn't been an easy one, and it took a $45 billion hit to its March 2021 valuation of $95 billion.
The ratio of capital demand to supply for late-stage companies skyrocketed to record heights in Q1 2023. PitchBook estimates that for every $3.20 demanded by late-stage founders, there's just $1 available. The situation is mellower for early-stage and venture-growth, with a 1.6x and 1.3x ratio, respectively. But any way you spin it, capital is tight and founders are hungry.
There are around 219 companies in the IPO backlog, according to Venture Monitor estimates, and startups with high cash-burn rates are even more reliant on nontraditional investors like corporate VCs, PE firms and hedge funds.
On seed-stage ventures, investors are staying positive. Seed-stage funding didn't collapse in 2022 as much as later-stage did, and populating microfunds are bolstering seed-stage activity.
The median deal size for seed companies in Q1 of 2023 was $3 million, an uptick from 2022's median of $2.6 million. Median pre-valuation for seed-stage startups are also on the up-and-up, hitting $13 million in Q1 compared to a median $10.5 million last year.
The trend is likely an indication of investors flocking to higher-quality companies, PitchBook analysts note. The sudden emergence of early-stage companies in the generative AI space is also giving even pessimistic investors something to be bullish about.
But the dealmaking decline is leveling off from 2022—a sign that the market could soon regain its footing—and seed valuations are ticking up. These five charts take snapshots of what's happening across the venture market in today's bear market, spotlighting insights from our Q1 2023 PitchBook-NVCA Venture Monitor.
The pace of decline in total VC deal value appears to be slowing as both deal value and count level off. VC-backed companies raised $37 billion in Q1 across an estimated 2,856 deals. Late stage deals fell for the seventh straight quarter, and even angel and seed-stage deals declined sharply, hitting a 10-quarter low, despite showing resilience through 2022.
It's especially tough for B2B tech startups, as "every contract is that much harder to earn," said Tasneem Dohadwala, founding partner of Excelestar Ventures. "Therefore, when investors are sizing up these companies on a revenue basis, they don't look as potentially compelling as they could look as if the economic times were not as tight."
The number of late-stage VC deals over $50 million in later-stage companies is on track to reach less than half of 2022's count, as growth-stage companies have been hit the hardest by the tough fundraising environment. In Q1 2023, 55 late-stage companies closed deals over the $50 million-mark, making up around 7.7% of all such deals, compared to an average 14.6% last year.
Y-Combinator ended its late-stage focused fund last month to focus on its accelerator. Until the exit market picks back up, growth-stage companies whose runways are running out are staring down the gauntlet of a tough year of down rounds and "cram-down" financing.
Mega-deals—venture deals over $100 million—were riding high through 2021 before they started dropping off in mid-2022. Q1 2023 roughly brings them back in line with 2020 numbers, closing 18 mega-deals in early-stage, 19 in late-stage and 13 in venture growth.
The biggest mega-deal by a country mile in venture last quarter was Stripe's $6.5 billion Series I from investors including Andreessen Horowitz, Baillie Gifford and Founders Fund. But Stripe's path to its latest down round hasn't been an easy one, and it took a $45 billion hit to its March 2021 valuation of $95 billion.
The ratio of capital demand to supply for late-stage companies skyrocketed to record heights in Q1 2023. PitchBook estimates that for every $3.20 demanded by late-stage founders, there's just $1 available. The situation is mellower for early-stage and venture-growth, with a 1.6x and 1.3x ratio, respectively. But any way you spin it, capital is tight and founders are hungry.
There are around 219 companies in the IPO backlog, according to Venture Monitor estimates, and startups with high cash-burn rates are even more reliant on nontraditional investors like corporate VCs, PE firms and hedge funds.
On seed-stage ventures, investors are staying positive. Seed-stage funding didn't collapse in 2022 as much as later-stage did, and populating microfunds are bolstering seed-stage activity.
The median deal size for seed companies in Q1 of 2023 was $3 million, an uptick from 2022's median of $2.6 million. Median pre-valuation for seed-stage startups are also on the up-and-up, hitting $13 million in Q1 compared to a median $10.5 million last year.
The trend is likely an indication of investors flocking to higher-quality companies, PitchBook analysts note. The sudden emergence of early-stage companies in the generative AI space is also giving even pessimistic investors something to be bullish about.
Featured image by r.classen/ShutterstockRelated read: Q1 2023 PitchBook NVCA Venture Monitor
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