The amount of venture capital dollars flowing into St. Louis startups slowed in the second quarter of 2022, mirroring a nationwide trend that comes as uncertainty hangs over the industry.
A newly released report from PitchBook and the National Venture Capital Association tracked 12 St. Louis startup deals totaling $70.3 million in the second quarter. Those figures are down from 14 deals and $161.9 million in funding for local companies in the first quarter this year. The second quarter numbers also track significantly below the funding amounts in the third and fourth quarters of 2021 when local firms raised $259.5 million and $338.8 million, respectively.
Nationwide, deal count and venture investment into startups dropped considerably in the second quarter, according to Pitchbook’s report. Startups raised $62.3 billion across 3,374 deals, off from $81.9 billion in 4,467 deals in the first quarter of 2022 and $81.2 billion and 4,268 deals in the second quarter of 2021. While down from the previous quarter and the year-ago quarter, Pitchbook said the second-quarter 2022 figures pace ahead quarterly totals from before 2021, which was a record year for startup investment.
“This was partly due to the strong environment of seed-stage investing, which still seems to be relatively insulated from growing uncertainty at the late stages. That said, the pace of VC activity across all stages is likely to slow in (the second half of) 2022 as the threshold for closing deals rises and pricing uncertainty extends to the early stages of the investment cycle,” Pitchbook’s report said.
In St. Louis, the top two funding deals in the second quarter were a $26 million Series C-1 funding round for agtech firm CoverCress and cancer drug startup Immunophotonics' $21 million Series B financing. Both deals were announced in April, the first month of the second quarter. Since May, no St. Louis companies have publicly reported funding rounds of more than $5 million, according to Pitchbook.
Locally, venture capitalists have told St. Louis Inno they are seeing signs of a tightening venture capital market, with access to venture capital narrowing for their portfolio companies. It’s also impacting funding conversations with startups about funding deals, the investors said. For example, St. Louis Arch Angels Chairman Brian Kinman said the angel investment group is looking harder at startup valuations and ensuring startups' growth plans take into account the slowing market when it comes to plotting when they will seek their next round of venture capital, given the tighter funding landscape.
As venture capital investment slows, Pitchbook’s report says investors and startups alike are expected to make moves to either reduce spending or protect their existing investments.
“A tighter investing environment means many VC investors are prioritizing existing portfolio companies (particularly those at the late stages) and how to support them through to profitability. At the same time, more frequent news of layoffs at VC-backed companies is surfacing, and hiring is generally tightening. Many VC-backed companies are working to solidify balance sheets and focus on optimizing for cash to better position themselves in the downturn,” the report said.
