Venture capital raised by U.S. companies is on pace to hit a six-year low in 2023 as all sectors and stages of the investor ecosystem struggle to adapt to the pressure of rising interest rates, according to PitchBook Data’s latest quarterly report on VC activity.
Tampa Bay is not immune from the continued downward spiral in investment activity.
Total capital invested in the region fell nearly 37% from $90.5 million to $57.4 million between the first and second quarters of this year and 79% from a high-water mark of $267 million in the first quarter of 2022. Sixteen deals in total were reported last quarter, down from 17 at the start of the year and 26 in the last quarter of 2022, according to the report.
On a month-by-month basis, the amount of locally invested capital plummeted between April and May from $45 million to $3.65 million but recovered slightly to $8.65 million in June, PitchBook data shows.
Venture capital investors across the U.S. are sitting with roughly $300 billion in dry powder, or committed but unallocated capital — a record that is double the amount reported in 2019, according to PitchBook.
The report warned that the availability of capital, which fell to the lowest point since 2010 in the early-stage investing segment, may “stifle the development of promising innovation hubs and limit investment activity to existing hot spots.”
In Florida, the $754 million of invested VC capital last quarter is 200% lower than the year prior and 435% lower than its peak of $4.04 billion in the first quarter of 2022, according to the report.
A range of factors are driving the broad-based cool-off in activity, including investors devoting more time and resources to existing portfolio companies, deals taking longer to close and startups conserving capital to avoid returning to the market, according to PitchBook.
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U.S. deal count plateaued during the second quarter while deal value continues to lag compared to 2022 numbers, according to PitchBook, which said the market could “hit a cliff” if economic conditions further deteriorate.
Exit values for VC investors also declined to a decade low last quarter, according to PitchBook. Acquisitions account for around 60% of exit value generated this year so far.
“Immense amounts of capital are trapped in late- and venture-growth-stage startups hesitant to gamble on whether their financial performance can withstand the intense scrutiny of the public markets,” the report said.
“The pullback of nontraditional investors, elevated interest rates and persistent inflation continue to impact these late-stage companies’ wherewithal to reach a successful exit and compel [limited partners] to recycle capital into the VC ecosystem,” according to the report.
“It would be foolish to attempt to minimize the difficulties of the current market,” PitchBook said in the report, but there is still room for optimism. “Throughout history, market crunches have often paved the way for the emergence of industry titans.”
PitchBook partners with the National Venture Capital Association to release its quarterly report on the U.S. venture capital ecosystem. Data included in the report accounts for equity investments in startups made by angel investors, seed funds, VC firms, corporate venture firms and institutional investors.
