Venture capital activity nationwide and in Arizona slowed in the fourth quarter as investors took a cautious approach to startup funding amid economic headwinds.
According to the Venture Monitor report, released Thursday by research firm Pitchbook and the National Venture Capital Association, Arizona companies inked 31 deals totaling $427.2 million in the fourth quarter, compared to 49 deals and $964.6 million raised in Q4 2021.
In the full year 2022, Arizona companies raised a total of $1.21 billion across 160 deals, sharply lower than the $2.13 billion brought in through 184 deals in 2021, according to the report.
Phoenix metro startups secured 28 deals totaling $407.6 million in the fourth quarter, compared to 39 deals totaling $887.8 million raised in Q4 2021.
Valley startups raised a total of $1.16 billion across 143 deals last year, a decline from $2 billion across 157 deals in 2021.
Phoenix-area companies representing software, cybersecurity, telecommunications, human resources, finance, education and health technology, rounded out the state’s top 10 investments in Q4 2022.
Tempe-based cybersecurity company Bishop Fox raised the greatest amount of capital in the fourth quarter with a $129 million series B round in November.
Other top Phoenix-area deals include:
- $100 million in financing for Phoenix-based telecommunications company Mangata Networks
- $40 million in series B funds for Scottsdale-based hospitality staffing company Qwick
- $36 million in series B funds for Mesa-based microschooling and in-home education company Prenda
- $34 million in series B for Chandler-based financial services firm Brightside
- $14 million in series B2 for Phoenix-based nonprofit fundraising software company Virtuous Software
- $12 million in series B for Phoenix-based soil health technology company MyLand
VC deals, company exits down nationwide
Nationwide, venture capital investments are “readjusting as businesses assess the current economic landscape,” following years of frenzied activity and soaring company valuations, according to Pitchbook’s report.
A lethargic pace of company exits was a key indicator to slowing momentum with $71.4 billion in total exit value generated in 2022, marking a 90.5% decline from a record-setting $753.2 billion in 2021. It was the first time that figure dropped below $100 million since 2016, according to the report.
Late-stage venture capital was heavily impacted by volatility in the stock market as public listings of VC-backed companies declined to levels not seen since the early 1990s with just 14 listings occurring in the fourth quarter and 76 in 2022, the report said.
Despite a decline in investment activity, last year marked the greatest amount of capital raised by venture funds with $162.8 billion across 769 funds, the second consecutive year that number exceeded $150 billion.
Angel and seed-stage deal activity in 2022 remained “relatively resilient” with $21 billion invested across 7,261 deals nationwide, Pitchbook said.
In the fourth quarter, venture capital investors poured $10.7 billion into early-stage startups across 1,330 deals, a decline from a yearly high of $23.8 billion in the first quarter of 2021.
Late-stage investment activity dropped to a total of $13.5 billion across 936 deals in the fourth quarter, the lowest quarterly value recorded in five years, according to Pitchbook.
“Unable to justify the sky-high valuations seen in 2021 and 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,” John Gabbert, Pitchbook founder and CEO, said in a statement.
Venture capital fundraising nationwide is likely to remain subdued in the first half of 2023 given the “challenging near-term outlook for the national economy and stock markets," Melissa Smith, head of specialized industries for middle market banking at JP Morgan Chase Commercial Banking, said in a statement.
“Valuations are correcting, and founders need to balance growth plans with liquidity runway,” she said. “At the same time, private companies can take steps to best position themselves ahead of raising capital and to prepare for a turn in the exit environment.”
