Deal activity in Minnesota declined in 2022, mirroring a national trend in the broader venture-capital ecosystem.
Last year, the total deal value fell by 18.4% to $2.2 billion, with 165 VC deals occurring throughout the year, reflecting a decline of 15.8% from 2021, according to data from a recently released PitchBook-NVCA Venture Monitor report. The trend follows a similar experience on a national scale, where venture capital momentum has slowed, which the report attributes to macroeconomic volatility.
“Slowing momentum was 2022’s primary narrative in the VC industry,” the report said, pointing to investment levels “readjusting” after years of high activity and valuations.
In Minnesota, the decline in deals comes off a particularly hot year in 2021, when a record 196 deals took place, Vincent Harrison, an author of the report and VC analyst at Pitchbook, told the Business Journal in a statement.
And despite total deal value falling, down from $2.7 billion in 2021, the year 2022 marked the third consecutive year that the figure passed $2 billion, Harrison said.
“In fact, the combined deal value from the past 3 years ... is greater than the total deal value from 2012 to 2019,” he added.
The data also tracks exit activity, showing that Minnesota also experienced a significant drop in exit deal size, which reflects, for example, the size of a merger. The state saw $595 million from exits, down from $10.9 billion from exits the year before. (Minnesota saw several high-priced IPOs in 2021, including Bright Health Group Inc., Agiliti Inc. and Miromatrix Medical Inc.)
Deal counts also dropped, falling 34.8% in 2022, the data show.
Minnesota is not alone in this “frozen” exit market, according to the report.
Nationwide, total exit value dropped 90.5% in 2022 to $71.4 billion, compared to 2021’s record-high of $753.2 billion. “As volatility in the public markets starts to spill into the world of private capital, late-stage VC deal activity, in particular, has been heavily impacted,” the report said.
“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, founder and CEO of PitchBook, said in a statement. But he did add that earlier stage deal activity and fundraising showed resiliency.
Looking ahead, deal activity in Minnesota and in the U.S. will depend on factors like rising interest rates, inflation and geopolitical conditions, Harrison said. Due to uncertainty, "investors, founders and other stakeholders will likely proceed with heightened caution,” he said.
