Venture capital investing is cooling off in Greater Washington amid growing uncertainty about the direction of the economy.
In both number of deals and dollars invested, venture capital activity in the region declined sharply between the second and third quarters, according to a report released Thursday, with total dollar volume falling below $1 billion for the first time since the fourth quarter of 2020.
In all, there were 72 investments in D.C.-area firms in the quarter that ended Sept. 30 totaling $699.3 million, compared to 85 investments worth $1.21 billion in the second quarter, according to the latest PitchBook-NVCA Venture Monitor report, published each quarter by data firm PitchBook and the National Venture Capital Association with Insperity and J.P. Morgan. In the third quarter of 2021, there were 93 deals struck in D.C. and its surrounding suburbs, totaling $1.31 billion.
It's a trend playing out across the country as the combination of high inflation, rising interest rates and declining stock values has dulled many investors' appetite for dealmaking. Though the number of deals nationwide increased quarter over quarter, from 3,374 in the second quarter to 4,074 the third quarter, total dollars invested plunged 31%, to $43.2 billion.
The report measures both direct VC investments in companies and funds raised by VC and private equity firms. Through the first three quarters, VC firms had already raised more than they did in all of 2021, $150.9 billion, though only $29.4 billion of that was in the third quarter of 2022, according to the report.
Megadeals — those VC investments valued at $100 million or more — also dropped during the third quarter. Only 95 megadeals closed nationally in the quarter, the lowest number in two years and down from 145 in the second quarter.
"The VC slowdown narrative that has been pervasive in the market this year has finally materialized in the data," said John Gabbert, founder and CEO of PitchBook in the report. "In many ways, 2021 was an outlier year, and the VC market is now returning to pre-pandemic levels and long-term trends of steady growth.”
The slowdown is playing out at a time when fewer late-stage companies are finding buyers or going public. In the D.C. region, there were just seven so-called exits, totaling $623 million, in the third quarter, down from 11 exits valued at $1.83 billion in the third quarter of 2021.
Among the region’s largest exits in the quarter was Axios Media's agreement to sell itself to lead investor Cox Enterprises for $525 million.
Despite the slowdown, some Greater Washington companies managed to raise eye-popping sums during the most recent quarter. Pie Insurance, a tech-enabled insurance firm with dual headquarters in Washington and Denver, raked in $315 million in a Series D round in September, bringing its lifetime funding to more than $615 million, according to the company. That's likely to go down as one of the largest raises by a Greater Washington-based firm this year.
D.C. school fundraising startup GiveCampus raised $50 million and Bethesda consumer and market research company Collage Group raised $25 million, as did College Park online cybersecurity training firm Cybrary. Tysons government contracting firm RegScale Inc. raised $20 million in a Series A round.
