PitchBook News - Our VC predictions: revisited

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The Research Pitch

August 6, 2022

Making sense of what's been an unforeseeable year for VC

The first six months of 2022 have been anything but predictable, which makes looking back at our outlook for venture capital from the start of the year a very mixed bag.

Back in December, when we crafted these outlooks, the public markets had only started to show negative momentum and the rapid growth of inflation and interest rate increases were only distant probabilities.

It's clear that the financial markets are on the cusp of a major shift, however, as these unprecedented changes in the macroeconomic climate have had a mixed effect on the VC environment.

For instance, capital investment totals and fundraising figures are pacing at historically high levels, displaying at least a maintenance of the record-breaking momentum from 2021.

This was a bit surprising given the anecdotal sentiment heard from VC participants, especially as high-growth assets were hit hardest by the correction in valuations.

We expect most of this stability is due to the robust levels of dry powder and general capital availability for VC-backed businesses that GPs have needed to deploy.

Dry powder is still driving historically high dealmaking.

This strength in dealmaking has allowed two of our outlooks to be on a positive trend toward coming to fruition by the end of the year.

These include the top 10 US VC ecosystems completing at least 400 deals each, continuing the trend of geographic expansion, and 1,500 unique corporates making an investment during the year.

It's important that we highlight these positives to avoid the extreme panic narrative that is all too easy to come by, but there are some cracks starting to form from the pressure of a cycle shift.

This negative trend is clearest when looking at the public listing market and the nearly six-month drought of new VC-backed IPOs.

If this continues for the rest of the year, the lack of liquidity coming back into the VC ecosystem from the large exits via public markets could have a long-term detrimental effect on fund returns—and therefore the amount of new capital flowing to the strategy.

This avoidance of new public listings by startups and their investors directly refuted our outlooks about YoY IPO volume growth but also contributed to a correct prediction about SPACs' fall from favor.

Start-of-the-year outlooks are always an imperfect task, especially during a time when the business cycle is in flux. Further, we're only halfway through this tumultuous year and the second half is still wrought with uncertainty about Fed action, economic growth—or lack thereof—and myriad other factors.

We will continue to monitor these trends and how they impact the venture market as we go through the rest of the year.

Be sure to download the full mid-year analysis of our 2022 US VC Outlook.

Best,

Cameron Stanfill, CFA
Senior Analyst, Venture Team Lead

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Market Updates

Global fund performance held strong in our latest data, but those metrics may soon return to more modest levels.

Final one-year IRRs for private equity and venture capital checked in at 46.6% and 50.5%, respectively, through Q4 2021, but macroeconomic headwinds that hit markets this year are having a visible impact in our preliminary Q1 data.

Each strategy, of course, tells a different story.

Our Global Fund Performance Report provides a comprehensive look at the returns of various fund strategies, including real estate, real assets, private debt, funds of funds, and secondaries:

get the free report

Central banks continue to fight stagflation fears, while the US has experienced a second consecutive quarterly decline in real GDP—but that didn't stop equity markets from rebounding in July.

Negative headlines for housing, energy and labor markets will need to be monitored, though.

Our latest Global Markets Snapshot breaks down a month of trends in the equity, debt and commodities markets, tracking returns across a range of indexes and sectors.

It also includes private markets activity, including major deals, IPO performance, unicorn creation by region, and more datasets that our research team is tracking as markets remain volatile:

get the free report

Thematic Research

2022 European Private Capital Outlook: H1 Follow-Up

Like we did with US venture capital above, our London-based analysts also revisited their predictions across the European PE & VC ecosystems.

So, how is our projection for Nordic VC tracking?

And for carveouts? And SPACs?

Check out our midyear assessment:

read the free research

Emerging Tech Research

VC activity in fintech is simmering down after a breakthrough 2021.

Capital invested in Q2 fell 17.8% from the previous quarter, the largest percentage drop since late 2018, according to our Q2 Fintech Report.

Exits have also stalled as IPO activity grinds to a halt, and we expect startups will attract the attention of incumbents looking for M&A opportunities.

But even as the market turns, we've identified emerging opportunities in DeFi lending and non-dilutive starting financing:

read a free preview

Webinars & Events

This week, senior tech analyst Jonathan Geurkink discussed the main ways external influences have affected the global supply chain in recent years.

He also covered the VC environment surrounding this sector and how tech can help combat current pain points: watch our free webinar

Aug. 18: What's the current state of US VC? Our quarterly Venture Monitor webinar will feature insights from professionals at Venture Forward, Insperity and J.P. Morgan. Register here.

Aug. 24: Want actionable guidance on how to navigate ESG efforts? Hosted by Venture Forward, NVCA, PitchBook, and the Nasdaq Entrepreneurial Center, this educational workshop for investors focuses on practical strategies and guidance for taking action. More details here.

In the News

Our insights and data featured in the press:

"A lot of fintech companies—when they come into the market—they kind of think they can disrupt the industry going the Uber and Airbnb route; build as fast as you can and then deal with compliance regulations later." [Business Insider]

VCs invested around $16 billion in early-stage US companies in Q2, a 22% decrease from the same period a year ago. [Fortune]

Why smaller and younger PE firms are facing a much more competitive fundraising market. [Institutional Investor]

Funding and valuations for VC-backed fintech companies dropped in Q2. [Axios Pro]

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)

US VC Valuations Report
2022 US Private Equity Outlook: H1 Follow-Up
Hydrogen Fuel Cell Tech
Analysis of Public PE Earnings
ETR: Q2 Mobility Tech Report*
ETR: Q2 Information Security Report* (sneak peek!)

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PitchBook News - Our VC predictions: revisited

Older messages

Fund performance holds strong

Fintech investment simmers down

Revisiting our 2022 US VC predictions

Global markets bounce back

Revisiting 2022 predictions for Europe

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