We're calling on allocators, asset managers, and anyone active in the global private funds ecosystem to take our 2023 Sustainable Investment Survey.
The survey takes about 10 minutes and the question set is focused on investors' views on sustainable investing, as well as the subtopics of ESG and impact investing.
Participants who complete the survey can enter our prize pool. We'll also make a donation to World Central Kitchen for each completed entry.
Take the survey now |
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Severe contraction for US VC in Q1 leaves the market vulnerable
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The US venture capital market had a rough first quarter, and not just because of the collapse of Silicon Valley Bank.
Just $5.8 billion in exit value was generated, a figure that's only 2.2% of the quarterly high from the past two years and the lowest quarterly value since the global financial crisis.
Dealmaking didn't fare much better. Deal value fell more than 60% from its peak in Q4 2021. Last quarter's $37 billion total also includes Stripe's $6.5 billion round, which wasn't even raised for the company's growth.
In 2022, the bright spot of the industry was fundraising, which set an annual record. That's no longer the case. Just $11.7 billion was raised in Q1, setting the year on a path toward the lowest annual total since 2017.
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| The drop in VC exits puts a huge strain on the market. |
We noted recently that the SVB collapse was just another pressure the market didn't need, but it's difficult to point back to that as the reason the venture industry is struggling. The compression of the market was well underway before the collapse, and in fact was a major piece of the failure.
The pressures mounting haven't yet caused company bankruptcies at a large scale, nor a major increase in down rounds—"yet" being the operative word.
If Q1 portends the 2023 market, and we believe it does, VC-backed companies needing to raise capital are going to be looking at a formidable market. Investor caution has led to high benchmarks for raising, and even companies that have continued along their growth path won't be able to raise at the multiples they'd hoped for, leading to smaller valuation step-ups and increased dilution relative to rounds of the past.
A reset is what the venture market needed. The $346 billion in deal value and $768 billion in exit value recorded in 2021 were not sustainable levels. However, the quick, steep contraction has left a high number of companies vulnerable, especially at the late stage and within venture growth—both areas of the market that have become heavily reliant on crossover investors and a fast-moving IPO market.
For more Q1 VC data, you can access the key underlying datasets from our upcoming PitchBook-NVCA Venture Monitor: Download the First Look
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Q1 fintech valuations show how the market wants profitability
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Multiples for public fintech companies declined in Q1 versus 2022 and private fintech valuations are following suit. We expect private fintech multiples to decline further.
Q1 reinforced that the market is shouting for responsible growth. Neo-banks and brokers revenue multiples have declined by over 80% from peak, high-growth fintech by over 80%, high-growth payments by ~75%, and insurtech by over 90%.
In the short term, we don't know the path of inflation and rates, and how severe a recession might be. As a result, it's impossible to predict how far public fintech multiples will decline.
Inflation could easily remain high, necessitating further rate increases. Or a recession could bring it back down. Regardless, we think that multiples from 2016-2019 provide a rough guide for where fintech valuations might settle if the Fed and ECB can tame inflation and drop rates by 200-350 bps.
Hypotheticals aside, rates are high today, which means that more VCs—especially at the late stage—will focus on valuations, profitability, and unit economics. This could take time. Many new VCs and founders were born in an era of low rates and will need to reorient themselves to today's higher cost of capital.
LPs are likely to consider reallocating from public equities and PE (i.e., venture capital, buyout, etc.) into fixed income if VC returns lag and short-term rates remain well above zero. This should reduce VC capital and refocus investment on higher-potential startups.
A silver lining is that lower valuations are leading to healthy fintech M&A. Exemplifying this, Acorns recently purchased GoHenry, Marqeta acquired Power Finance, and SoFi bought Wyndham Capital Mortgage. M&A could continue and even accelerate if multiples decline further.
Though until rates go lower, we would expect late-stage private fintech valuations to follow their public peers. A prime example is Stripe's valuation step-down.
For more data and analysis, download our Q1 Fintech & Payments Public Comp Sheet and Valuation Guide.
To speak about fintech valuations, email me and senior fintech analyst Rudy Yang. Also, follow me on Twitter at @JamesUlan100.
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Thanks,
James Ulan
Lead Analyst, Emerging Technology |
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March was chaotic for both private and public markets.
In response to the threat of bank runs in the era of instant communication, the Federal Reserve and other central banks took action to shore up available liquidity and stave off a financial disaster.
Our 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: |
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| IT and healthcare drive median buyout multiples higher. |
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Our research breaks down the valuation differentials for companies in these geographies—across EBITDA and revenue, public and private markets, and among sectors.
We also lay out why we don't expect the Europe-US divergence to persist in the medium term and see US multiples contracting similarly to those in Europe: |
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The Transient Era of Billion-Dollar VC Funds
Thirty-five venture funds raised $1 billion or more in 2022—more than twice as many as any year prior to 2021.
That fundraising pace, however, slowed tremendously throughout last year. Almost entirely by Q4.
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| One-year horizon performance for $1B+ funds is negative. |
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Our latest analyst note tracks activity and performance for the largest bucket of vehicles across this mega-fund boom and bust—and the outlook going forward: |
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The State of CVCs in Japan
Corporate VCs take a back seat to institutional investors in the US and the UK.
In Japan, it's a different story.
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| Japanese corporations play a vital role in venture. |
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Large corporations are the biggest players in the Japanese private market, and with record cash reserves and government support, CVCs are poised to wield even stronger influence in the domestic venture market.
Our note lays out the state of play in Japan's startup ecosystem, exploring market trends and breaking down the opportunities and challenges Japanese CVCs face: |
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Public Comp Sheets and Valuation Guides for Mobility Tech, Agtech
The spread of valuations for newly public mobility tech companies is wide—and with much volatility.
Within agtech, ag biotech stocks have thrived but other sectors have largely failed to find positive momentum.
Our tech research team published new guides for public comps and valuations this week, with the latest data on stock performance, revenue forecasts, and market caps of key publicly traded companies:
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We're hosting a pair of webinars later this month as part of a special series examining the leveraged loan and private credit landscapes in the US and Europe.
You can register here for the US-focused session on April 18 and here for the Europe-focused session on April 25.
- April 18: Senior tech analyst Brendan Burke will be moderating a virtual panel discussion on corporate venture capital and AI, featuring investors from IBM Ventures and Workday Ventures. Learn more about the free event here.
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Our insights and data featured in the press:
- VC's Q1 slowdown: by the numbers. [TechCrunch]
- The first quarter of the year marked the worst for VC deal value in 13 quarters. [Bloomberg]
- After three straight quarters of decline, fintech companies saw an increase in venture capital dollars raised in Q1. [Axios Pro]
- Another sector flipping the script on slower VC activity: generative AI. [Fortune]
- 2022 brought on a slew of macroeconomic challenges that trickled through the end of the year, all of which impacted the e-commerce landscape. [Retail Dive]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. |
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Highlights from our other recent research:
Market updates
Thematic research
Industry & tech research
Coming next week (subject to change)
- US PE Breakdown
- PitchBook-NVCA Venture Monitor
- PitchBook Benchmarks
- ETR: AI & Machine Learning Overview
- Emerging Space Brief: Hydrogen Storage
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Since yesterday, the PitchBook Platform added:
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