The venture funding spigot, which gushed like a fire hose in 2021 and early 2022, is all but drip-drip-drip now.
By the end of the first quarter of 2023, the fundraising momentum that began in 2021 had largely evaporated, with $11.7 billion closed across 99 funds in the U.S. — on track for the worst performance since the fourth quarter of 2017, according to a PitchBook-NVCA Venture Monitor report issued late Wednesday. Late-stage deal value declined for a seventh straight quarter.
In 2021, $158.5 billion was raised across 1,336 deals. Last year, $170.8 billion was raised, albeit with fewer deals (892).
“Activity has fallen rather consistently over the past year as the market further condenses from the expansion of 2021,” PitchBook VC analyst Vincent Harrison told MarketWatch. “People are approaching venture with a more cautionary lens.”
Max Navas, another PitchBook analyst who worked on the report, added: “The sluggish pace of fundraising for emerging and first-time fund managers could be a precursor to formidable fundraising experiences through the end of the year.”
Market researcher CB Insights projects venture outfits worldwide will report investments of about $65 billion across 6,000 deals in the first three months of the year. That would mark a significant decline from the previous quarter and the lowest quarterly funding amount since 2020, according to the research firm’s prior reports. CB Insights is scheduled to share its first-quarter data next week.
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Silicon Valley Bank’s collapse in March was not immediately visible in the data, but it was “another unneeded pressure on the market” and could “exacerbate the capital availability problem,” Harrison said. “Liquidity is becoming even more paramount.”
Logan Allin, managing partner and founder of Fin Capital, views 2023 as an “acutely painful year for private and public market tech companies that has been exacerbated by the SVB fallout.” This, he told MarketWatch, will have long-term “knock-on effects” to supporting companies and VCs in terms of access to capital and venture debt.
A balky economy and dearth of IPOs in the quarter (20) already had the VC market reeling. Just $5.8 billion in exit value was closed in the first quarter — less than 1% of the total exit value generated in the record year of 2021.
Capital commitments continued to concentrate in larger-size vehicles, but just two funds closed on $1 billion or more during the first quarter, compared with 36 in 2022, PitchBook said.