Startup exits continued to plummet in the first quarter of 2023, adding further strain to the reeling venture capital ecosystem that is retreating from its 2021 peak.
Only $5.8 billion was generated from initial public offerings, mergers and acquisitions last quarter, according to venture capital data firm PitchBook Data. That accounts for less than 1% of the total exit value seen in 2021.
Exits have fallen precipitously since the fourth quarter of 2021, when exit value reached more than $200 billion.
The steep declines will only ratchet up the pressure for a startup world already grappling with layoffs, dwindling VC dollars and the failure of Silicon Valley Bank, which was a key source of capital for startups around the nation.
Many of those challenges are closely related to the same factors fueling the decline in startup exits.
A challenging market for tech stocks has made IPOs virtually nonexistent. Just 20 public listings took place last quarter, according to PitchBook.
The number of acquisitions did increase slightly from the previous quarter to around 300 deals but remained well behind 2021's pace.
Acquisitions alone can't provide enough exit value to the VC ecosystem, PitchBook noted, and the number of highly valued unicorn startups unable to provide realized returns for investors is adding pressure to the VC market.
With the public market off the table for many firms, late-stage venture funding continued to fall last quarter.
Late-stage deals also declining
Startups raised just $11.8 billion in late-stage deals, declining for the seventh straight quarter, PitchBook said.
Investors are pumping the brakes in an effort to preserve their capital, PitchBook said, which could create a challenge for the influx of unicorn startups that raised large rounds during the friendly fundraising environment in 2021.
Startups that budgeted for 18 months of runway could be forced to raise new cash at a hit to their valuation. True to form, PitchBook found the median late-stage VC pre-money valuation fell almost 17% last quarter from the 2022 full-year figure.
The Silicon Valley Bank effect
Adding to the stress of the venture capital ecosystem in Q1 was the collapse of Silicon Valley Bank, which PitchBook described as "unneeded pressure on the market."
As we've noted, SVB worked with a large number of venture-backed startups across the U.S. and was a regular source of venture debt to firms, along with being a direct startup investor via its VC arm.
Startup founders have told American Inno the failure of SVB, coupled with the already-challenging conditions on the VC front, will pose a significant challenge for startups around the nation when it comes to securing venture debt.
As Chris Olsen, co-founder of Columbus, Ohio-based VC firm Drive Capital, recently told American Inno, the failure of SVB will be a "hindrance to the startup ecosystem of the world."
