An early look at data from the PitchBook-NVCA Venture Monitor Report shows that startups are starting to see an impact from economic headwinds in the first half of 2022.
The good news: The number of deals in the first half of the year has stayed relatively high, PitchBook said, with seed-stage companies securing around 1,400 deals. PitchBook attributed this to momentum from the strong tech environment that saw venture capitalists invest a record $329.9 billion in 2021.
Data shows that VCs raised $138.9 billion in 2021 and $121.5 billion through the first half of this year. In 2020, they brought in $85.4 billion. PitchBook called this “a positive sign for the market — especially compared to industry narratives.”
“While this activity is most likely a continuation of momentum from 2021, it’s still an encouraging sign around the level of capital availability through the uncertainty that the next few years may bring,” PitchBook said.
But it’s not all positive news for startups. Deal value has declined sharply. This last quarter was the first time since Q4 2020 with less than $77 billion in completed deal value, PitchBook said. Startups brought in $62.3 billion over the last three months compared to $81.9 billion in January, February and March.
“The outsized deals that became a theme of 2021 are not being completed as investors take a more cautious approach to the largest deals in the market,” the report said.
Venture capitalists who spoke to BostInno in late June about the advice they’re providing portfolio companies during this time said they expect funding deals will take longer and have less favorable terms for the foreseeable future.
“Founders should consider how to extend their runway to ensure that they have plenty of room to hit compelling milestones. It's likely going to take longer and be much more difficult to raise for the next 12-24 months, particularly at later stages,” said Sarah Hodges, a partner at Pillar VC.
While the money may be out there, PitchBook doesn’t expect startups to be getting significant amounts of it until the market improves.
“With well more than $230 billion in dry powder and nearly 3,000 funds being closed since the beginning of 2019, we can expect these trends to continue until more certainty can be found across economic markets.”
And one more unwelcome trend: The IPO window is still closed and exit values are depressingly low. The U.S. exit value more than doubled from 2020 to 2021, hitting a record $777.4 billion. So far this year, exit values have reached only $48.8 billion.
In Massachusetts, five biotechs went public via an IPO in the first half of 2022. By this time last year, that number was 10. Zero local tech companies have gone through a traditional initial public offering this year. Companies who spoke to the Boston Business Journal cited economic conditions, inflation and geopolitical impacts as reasons they weren’t considering an IPO.
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