Venture funding deals remained subdued nationwide and in Arizona during the third quarter as investors and startup founders are "optimizing for stability and cash flow” to meet challenges of the current market.
That's according to the latest Venture Monitor report from Pitchbook and the National Venture Capital Association (NVCA), which found that the slow pace of capital deployment was driven in part by an increasing number of startup founders opting for bridge funding rounds and venture capital firms pushing back fundraising until at least 2024.
Arizona companies inked 36 deals totaling $182.8 million in the third quarter, compared to 45 deals and $281.4 million raised in the third quarter of 2022, according to the report.
Valley startups secured 29 deals totaling $178.4 million in the third quarter, compared to 42 deals totaling $281 million in the same time period last year. Phoenix deal value still increased from $119.9 million across 27 transactions in the second quarter, which marked the lowest amount recorded by Pitchbook since the first quarter of 2018.
Metro companies representing software-as-a-service, agriculture and health technology and energy services were among the state’s top investments in Q3 2023.
Tempe-based climate tech company Persefoni raised the largest capital round in the third quarter with a $50 million series C deal closed in August.
Persefoni's raise marks one of the largest VC deals in Arizona this year, behind Scottsdale-based Lessen, which closed a $500 million debt and equity financing round in the first quarter, according to data from Pitchbook.
Other top Phoenix-area deals include:
- $24 million in an early-stage deal for Tempe-based solar panel startup Erthos
- $23 million in a series B round for Phoenix-based agtech company MyLand
- $18.3 million in an early-stage round for Scottsdale-based Imagen Dental Partners
- $13.2 million in a late stage deal for Chandler-based clean energy startup Elevation
- $10 million in series A for Scottsdale-based real estate lending marketplace CommLoan
- $7 million in series A for Tempe-based health equity startup TruLite Health
Fewer IPOs also leading to sluggish VC fundraising
The third quarter marked the nation's lowest overall venture deal value in six years and lowest deal count in about three years, according to Pitchbook.
Startups nationwide raised $36.7 billion across 2,716 deals in the third quarter, compared to $46.4 billion in the third quarter of 2022. During the first three quarters of 2023, total deal value was $125.8 billion, down 38.6% from $204.8 billion during the same span last year.
A decline in initial public offerings during the past 18 months, along with a cautious approach by institutional investors, is leading to an overall liquidity crunch and sluggish venture fundraising, Pitchbook said.
Venture capital firms nationwide raised $42.7 billion during the first three quarters of this year, nearly a quarter of the $172.5 billion raised in 2022. This year is on pace for the lowest amount of venture capital raised in the U.S. since $46.5 billion in 2017, according to Pitchbook.
Pitchbook reported 30 late-stage mega-rounds above $100 million nationwide in the third quarter — with the quarter's total deal value buoyed by Anthropic’s $4 billion investment from Amazon.
Seed funding value was $3.2 billion across 1,214 deals in the third quarter, falling to pre-pandemic levels in line with 2018.
Pitchbook said the bar to receive seed backing is "higher than ever" as venture capital firms have slowed their pace of investment, allowing them to conduct more thorough due diligence and uncover red flags they may have previously overlooked during the pandemic-era funding frenzy.
Early-stage funding for startups reached $8.5 billion across 1,341 deals in the third quarter — the lowest quarterly deal value since the third quarter of 2017.
Despite slower deal activity, the report said the venture capital ecosystem remains well-capitalized and additional sources of liquidity from the Inflation Reduction Act and the CHIPS Act are becoming available. In addition, further investment in research-heavy sectors could unlock significant value.
“The last 18 months have seen a level of tumult in the economy that would have been unimaginable just a few years earlier, but amid stormy seas, VC remains well positioned to ride the waves,” Pitchbook wrote.
