NVCA Report: U.S. venture transactions tanked, and IPOs plummeted Q2

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The final numbers of the Pitchbook-NVCA Venture MonitoR shows that the U.S. startup community experienced mixed results in the second quarter.

Although deal count and fundraising by VC fund funds remained strong during Q2, everyone was more cautious due to economic concerns and the conflict in Ukraine. Economic downturns affected all stages of deal making and VC-backed public listing. Report said.

PitchBook, the National Venture Capital Association and (NVCA) jointly produce this quarterly report with support by Insperity as well as J.P. Morgan.

Although deal count was strong, it is still significantly lower than the 2021 highs. However, deal value decreased across all stages. Investors took a cautiouser approach to the mega-deals which dominated 2021. The VC industry has more than $230 Billion in dry powder and close to 3,000 funds have been closed since the start of 2019. It is likely that the prevailing trends of steady deal count and adjusted pricing will continue until certainty returns.

The Q2 2022 VC-backed exit activity largely mirrored Q1. While corporate mergers-and-acquisitions activity remained steady in Q2, the largest change was the dramatic decline of traditional initial public offerings (IPOs).

SPAC mergers (special-purpose acquisition companies that bypass IPO procedures) also decreased in Q2. This brings the total number public listings for IPOs and SPACs in the first half 2022 down to 42. This is especially concerning because of the possibility for billion-dollar exits. Historically, IPOs have been the primary source of liquidity for private businesses operating at this scale. This is due to the fact that VC-backed IPOs have historically had a large positive impact on U.S. markets.

“The second quarter of 2022 brought an expected continuation of market tightening in some parts of the U.S. venture ecosystem,” said NVCA president and CEO Bobby Franklin, in a statement. “However, the industry’s record dry powder continues to fuel critical innovation that is addressing the country’s important needs. The venture industry’s long-term view of investing, even during uncertain fiscal times, is further proof it is a reliable economic engine with an eye toward funding the next generation of great American companies.”

“As the market continues to react to volatility over the past six months, the venture ecosystem demonstrates strength as dry powder reaches new heights and fundraising levels surpass more than $100 billion for the second consecutive year,” said John Gabbert, founder and CEO of PitchBook, in a statement. “Exits remain extremely low while late-stage companies act with caution as a result of bearish public market activity. There are still uncertainties as to what to expect in the second half of the year; however, market indicators show resilience to weathering the potential economic downtown.”

Exit activity

NVCA data for U.S. transactions

Seed-stage investments are typically the furthest away from the public markets and are therefore more protected from economic volatility than the rest. This is the largest estimate of total seed deals in Q2 to date.

Q2 early stage VC saw increased pressure on deal activity, with $16 billion being invested in 1,340 deals. The quarter’s total deal value dropped well below the record quarterly highs set in 2021, but is still ahead of pre-pandemic levels.

The data does not show a significant decline in late-stage deal counts, but the average deal size has fallen substantially from its recent highs.

VC fundraising activity

For the second year in a row, U.S. VC fundraising exceeded $100 billion. The capital raised this year is close to record levels due to strong performance from experienced managers in the first six months.

The report covered $121.5 billion in closed funds across 415 funds over six months. This makes 2022 the second-highest year for U.S. VC fundraising, and the second consecutive year that this figure has exceeded $100 billion.

After a record $16.8billion raised by new managers in 2021, first-time fundraising had a difficult start to the year.

Investing activity

NVCA first look data in Q2 2022.
NVCA data for Q2 2022.

Q2 2022 witnessed very similar exit activity than Q1. These counts were compared to the historical pace at which 1,100 exits per year were recorded by the NVCA from 2014 to 2020, with exit values lagging in the last three years.

VC-backed companies continued to have virtually no IPOs in 2022. 22 companies were closed during the first quarter of 2022, compared with 183 in 2021 and 108 for 2020.

Corporate M&A exit count remained steady with more than 200 deals closed in Q2. Public listings being halted, private companies may look to strategic acquirers for more liquid liquidity, though exit value expectations are adjusted to reflect overall repricing across the ecosystem.

“Over the last quarter, the pace of fundraising has slowed sharply and valuations (mostly in the later stages) are beginning to correct,” said Pamela Aldsworth, head of venture capital coverage at J.P. Morgan Commercial Banking, in a statement. “We expect valuations will come down across all investment stages as this cycle plays out – and in our view, this is a healthy resetting of the bar. If things get quieter than expected, founders may need to make difficult decisions in order to maintain runway. Meanwhile, with IPO markets currently unavailable, a consolidation wave could be just around the corner.”

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