Venture capital activity declined nationwide and in Arizona during the first quarter as elevated interest rates, instability abroad and bank failures triggered a wave of anxiety among investors and markets, according to a new Pitchbook report.
Arizona companies inked 26 deals totaling $131.5 million in the first quarter, compared to 44 deals and $222.2 million raised in Q1 2022, according to the Venture Monitor report, released Thursday by research firm Pitchbook and the National Venture Capital Association.
Valley startups secured 22 deals totaling $129.7 million in the first quarter, compared to 40 deals totaling $214 million in the same period a year earlier.
Phoenix metro area companies representing software-as-a-service, life sciences, e-commerce, and education and health technology were among the state’s top investments in Q1 2023.
Tempe-based medical device company GT Medical Technologies Inc. raised the greatest amount of capital in the first quarter with a $45 million series C round that closed in March.
Other top Phoenix-area deals include:
- $29 million in a series A round for Tempe-based Oats Overnight
- $20 million in funding for Gilbert-based electric vehicle startup ZEVx
- $6 million in funding for Scottsdale-based medical device company NeoLight
- $5 million in a seed round for Scottsdale-based medical technology company CND Life Sciences
- $3 million in a seed round for Tempe-based virtual reality technology company GeniusX
- $3 million in series A funding for Phoenix-based aviation software company Bluetail Inc.
VC nationwide declines for seventh consecutive quarter
The first quarter of 2023 was abysmal for traditional investors as late-stage deal values dropped for the seventh consecutive quarter to $11.6 billion, according to Pitchbook.
Investors grappled with liquidity crunches due to a frozen exit environment and shied away from larger deals to preserve capital, Pitchbook reported.
“This quarterly and year-on-year decline is steep enough that it is hard to contextualize,” Pitchbook wrote in its Venture Monitor report. “Whether the trend will continue — or soon reverse — remains unknown.”
Pitchbook reported 19 late-stage mega-rounds of deals more than $100 million in the first quarter, compared with 98 in the first quarter of 2022, widening the funding gap between startups and investors, and putting pressure on deal pricing.
In the first quarter, exit values nationwide dropped to the lowest level since 2013 with 227 exits completed at an aggregate value of $5.8 billion.
Angel and seed funding activity in the first quarter trended downward, falling to $3.3 billion across an estimated 1,396 deals, a 53% decline compared to the year-earlier period, as investors held on to their cash. It currently makes up the smallest share of venture investment in nearly a decade.
Early-stage funding also nosedived with $9.6 billion in value across 1,197 deals in the first quarter, the lowest since the second quarter of 2020, according to Pitchbook.
“It is clear that the venture market is no longer riding on the coattails of 2021 — a harsh reality for both startups and investors in the current environment,” Pitchbook wrote in its Venture Monitor report.
The market softening comes just as Arizona is seeing a surge of newly-created venture capital funds and outside interest from VC firms looking to invest in local startups.
