Venture capital exits slowed to a halt as the rest of the market continued to struggle, according to a first look at the fourth-quarter PitchBook-NVCA Venture Monitor released ahead of a full report next week.
For the full year, angel and seed stage deal activity continued to buck the overall downward market trend, with $21 billion invested across 7,261 deals, but it wasn’t all good news. In the fourth quarter, declining angel and seed deal counts are noted in the report as possibly foreshadowing a continued slide in 2023.
In 2022, seed-stage deal sizes and pre-money valuations were up over 2021 thanks in part to a large number of actively investing micro-funds, nontraditional investors and crossover investors. Should the economy continue to deteriorate, the report predicts, a decline in deal sizes is likely through 2023.
Driving a downturn in investment were nontraditional investors’ slowing their capital deployment to VC amid less attractive risk and return profiles. Compared to 2021, the upside potential of the VC asset class declined significantly in 2022, with many investors turning away from it. Nontraditional investors invested $24.1 billion in the fourth quarter, the lowest figure in three years.
Exit activity for 2022 came in at $71.4 billion, the first time the figure has dropped below $100 billion since 2016. Public exits of VC-backed companies slowed to what the report describes as “almost nonexistent levels,” with only 14 public listings in the fourth quarter. Acquisitions fared no better than initial public offering exits, dropping to $763 million, the first time the number has been below $1 billion in more than a decade.
The numbers were not all bad news. 2022 saw $162.6 billion closed across 769 funds, setting an annual record for capital raises and the second consecutive year exceeding $150 billion. The record was driven by capital concentrating on larger-sized funds in the Bay Area and New York VC ecosystems.
Overall VC deal activity dropped to an estimated figure of just below 4,000 deals in the quarter, down from a high of more than 5,000 in the first quarter. The overall deal value was also down about 60% from the same quarter of last year.