Tech startup investing last year pulled back from Icarus heights of 2021, so it's important to keep things in perspective: The number and value of VC deals dropped in each successive quarter of 2022 – but the total was still higher than any year in 2019 and before.
VC firms invested a total of $238 billion nationwide in 15,850 deals, according to the year-end Venture Monitor report from PitchBook and the National Venture Capital Association released Thursday. That was much lower than $345 billion in 2021 but still greater than $171 billion in 2019.
However, the report noted a "striking" drop-off in acquisitions, IPOs and other exits: $71 billion in value returned to investors – less than 10% of 2021's record $753 billion and the first total of less than $100 billion since 2016.
“Despite months of persistent inflation, slowing growth, and rising geopolitical tension, the venture ecosystem remains optimistic that there is still tremendous opportunity for innovators,” NVCA CEO Bobby Franklin said in a release. “While the tightening monetary environment may present new challenges, there is no wrong time to work toward a better tomorrow. As economic conditions fluctuate, we will no doubt observe the next generation of entrepreneurs creating products and services that solve some of the world’s biggest challenges.”
Columbus e-commerce software startup Loop Returns closed out the year with the most fundraising for Central Ohio and statewide in the fourth quarter, adding $50 million out of a potential $60 million offering to a Series B that first closed in July 2021. The PitchBook data lists the round as $115 million, which is the total indicated on a regulatory filing – but a footnote explains that $65 million of the round was raised two years ago.
Central Ohio rounds that closed in the quarter are $10.7 million to IncludeHealth, $7 million to MoveEasy, $4 million to Redi.Health and $3 million to Synota. Other fundraising listed in the PitchBook data based on regulatory filings for rounds that have not yet closed and been announced were for Breakaway Music Festival, Invirsa and SureImpact.
Consistent with the slowdown in exits, the report lists none in the fourth quarter in all of Ohio – and only two in the Great Lakes, both in Chicago.
The report omits two acquisitions: Grandview Heights-based Clarus R&D Solutions LLC, whose software automates the burdensome process of applying for an R&D tax credit, was acquired in September by TriNet Group Inc. in the San Francisco Bay Area; and Health in Motion Network LLC, a Columbus startup connecting pharmacists to patient's health records, which was acquired in October by Silicon Valley-based Custom Health. Terms were not disclosed for either.
Statewide there were 195 VC investments in startups, 20 fewer than the prior year, totaling $2.1 billion.
Startup valuations fell in several rounds in 2022, marking a correction, John Gabbert, founder and CEO of PitchBook, said in the release.
"Retreating from the ‘growth-at-all-costs’ mindset seen in recent years, many investors are pulling back until the ecosystem returns to a more palatable normal," he said.
Inflation and soaring interest rates are playing a role: For the past several years, major institutional investors turned to VC because low interest rates dampened returns in traditional asset classes, the report said. Now those investors are diversifying, and investments in pre-revenue companies are less attractive.
However, the report said both private and public sectors recognize the need to invest in advanced manufacturing, sustainable energy, artificial intelligence and workforce development. Incentives created with the recent federal Chips and Science and Inflation Reduction acts have yet to impact the markets.
