PitchBook News - Years-long runway for VC

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The Research Pitch

July 16, 2022

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Despite reports to the contrary, the US VC market is not dead

Recent VC activity could be running on sustained momentum from the end of 2021. Even so, capital remains available for startups. Established managers are deploying record levels of dry powder, and LPs are still seeking new VC commitments—at least for now.

US VC funds closed on over $120 billion through June 30, which is already the second-highest total of any year. It's highly unlikely that the remaining six months would match this pace. Fundraising tends to be lumpy like this when multiple large funds are raised within a single year.

Though this tremendous sum is largely concentrated within a select few funds, it still represents a massive amount of capital that will need to be deployed in the next few years. Combined with the existing uninvested capital from funds raised in the past couple of years, this should generate a relatively high level of VC deal activity despite the economic climate. Because capital needs to be invested, there shouldn't be a liquidity drought for startups needing to raise equity, but the valuations at which these deals are priced are likely to adapt to the current lower-multiple environment.

We've already started to see median valuations decline at both the early and late stages. And we expect they'll slide further as we've seen with public market multiples if economic conditions persist. As of now, we've yet to see a decline in deal counts, but the next two quarters will be telling to see if startups will continue to raise at similar rates, or if the potential of a down round will push companies to use their runway and avoid pricing new equity.

IPOs and the exit market in general were bleak as public listing activity slowed to a trickle in Q2. While many businesses should still find liquidity via the acquisition space, the lack of IPOs, especially if extended for another six months, could be an issue for the growing cohort of unicorns. IPOs and SPAC combinations were the main avenues these businesses have used for liquidity over the last few years.

While unicorns represent only a small percentage of all venture-backed companies, billion-dollar-plus startups are a critical driver of VC fund returns, as investors rely on their "home-run" exits to return the entire capital of the fund. The IPO window remaining closed for a year or more would at the least drag down IRR, if not potentially force a suboptimal VC round or rushed exit.

The future of venture remains uncertain as we move into the second half of 2022. But for now, startups are not in danger of being hung out to dry by a lack of capital in the market, and we expect investors to continue to find attractive, if less mature, opportunities.

For more data and analysis, download the Q2 PitchBook-NVCA Venture Monitor.

Best,

Cameron Stanfill, CFA
Senior Analyst, Venture Team Lead

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Market Updates

Take-privates and tech remain bright spots in a rocky PE landscape

US PE got off to a shaky start in the first quarter of 2022, but on the heels of a record-shattering year, investors remained cautiously optimistic. Three months on, the outlook is starkly different, and the future deeply uncertain.

Until the macroeconomic environment stabilizes, deal activity as a whole will likely remain weak, yet there are areas of opportunity for private equity investors, according to our Q2 2022 US PE Breakdown. Highlights include:

Deal value in the first half of 2022 totaled $529 billion, a healthy figure by historical standards, but activity is expected to slow in the next six months.

Take-private deals could be struck more easily, as PE firms look to deploy large amounts of dry powder and falling public market valuations make assets less expensive.

PE appetite for technology investments remained strong, topping $24 billion in aggregate and accounting for more than 27% of deal activity in Q2.

Strategic acquisitions dominated exit activity in Q2, as sponsor-to-sponsor exits slowed and IPOs all but vanished.

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Benchmarks

PitchBook Benchmarks for PE, VC and more

The global private markets' decade-long expansion was most recently defined by record-breaking activity in fundraising, fund performance and dealmaking. The current volatility has yet to be fully captured in fund returns, yet there are hints of what's to come, as preliminary data from Q1 shows that VC returns have turned negative.

Our quarterly PitchBook Benchmarks provide a detailed snapshot of the data, tracking aggregate closed-end fund returns across multiple strategies and vintage years. The latest edition is now available, including data through Q4 2021 and preliminary data from Q1 2022, with downloadable XLS tables, data visualizations and PDFs that break down the figures by fund type and geography:

download the free report

Webinars & Events

Join us on August 18 for the Q2 2022 PitchBook-NVCA Venture Monitor Webinar, where we'll review US venture activity from last quarter.

We'll be joined by Insperity to discuss the value of human capital strategy and by J.P. Morgan to unpack developments in the venture ecosystem.

Register here

In the News

Our insights and data featured in the press:

VCs drove $62.3 billion into US startups in Q2, down 23% YoY but still more than in any quarter before 2021. [Business Insider]

Some investors pulled out of former fintech favorite Klarna early enough to rake in big gains. [The Wall Street Journal]

“There's been a lot of growth outside of the major tech hubs [in the past few years]. It's places like Raleigh, Portland, Seattle and Chicago that have seen a lot of growth." [Axios]

Q2 marked a decline in average VC deal sizes and valuations, with the late stage seeing a substantial drop. [Reuters]

If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.

ICYMI

Highlights from our other recent research:

Market updates

Thematic research

Emerging Technology Research

Coming next week (subject to change)

European PE Breakdown (sneak peek!)
European Venture Report
ESG and Impact Investing in Private Market Real Estate

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PitchBook News - Years-long runway for VC

Older messages

VC fund returns take a turn

A positive sign for VC

Betting on recession

Bright spots in a rocky PE landscape

Female founders remain resilient

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