Deal Activity, Deal Value on Carta Platform Declined Every Quarter of 2022

Both deal activity and deal value on the Carta platform have “declined in every quarter of 2022, falling back to pre-pandemic levels.”

That’s a sharp reversal from last year, “when startup investment was propelled to new heights.”

This year, deal volume in Q3 “was down 30% from Q2, while cash raised by startups on Carta fell by 48% quarter over quarter.” Those declines will “likely grow less stark as more companies document their third-quarter deals in the weeks to come.”

Nevertheless, startup funding activity “remains high relative to most of the past decade, signaling that it might have been 2021—and not 2022—that was the outlier.”

Deal count and cash raised “fell most sharply at Series C.” The volume of investments declined from last quarter “at each stage, but a 52% dip for Series C was the steepest drop.”

The total amount of cash raised by Series C companies “fell 80%, also more than any other stage.”

The venture slowdown “has reached the seed stage.” While deal counts and round sizes began to trend down at most other stages in Q2, the seed stage “had been resilient in terms of valuations.” That changed in Q3, “as median seed deal size dropped by 9%—the first decline in eight quarters.”

Repriced option grants “were more common than in any quarter on record.”

Companies repriced 18,629 stock option grants on Carta, “surpassing the old quarterly record by 48%.” With private valuations trending down, “more companies are lowering the price of their options to make them more appealing to employees.”

Last year was “largely a good one for the tech industry.” Public tech valuations “reached new heights—the Nasdaq 100 tech sector index gained 27% for the year—and private investors placed big bets on the tech-heavy startup space.”

So far this year, though, “the same index is down 40%.” And the correlation “with private market activity remains: This was the slowest Q3 for venture capital deal activity on the Carta platform since 2018, and the 30% dip in activity compared to Q2 is the largest quarterly decline since at least 2016.”

One reason for the slowdown is “diverging expectations between buyers and sellers.”

Investors are “eager for a reset in private valuations that would reflect how public valuations have declined, but most companies are hesitant to raise a down round.” As investors wait for clarity, companies “are tightening expenses to reduce burn and wait for a more favorable fundraising climate.”

California remains “the center of the VC universe, with nearly half of all equity funding raised over the past nine months.” But the rest of the country is “gaining ground.” The South “claims 14% of activity, up from 11.6% for all of 2021.” Sun Belt cities “like Atlanta, Austin, and Miami have led the way, while the likes of Raleigh and Dallas have also emerged as increasingly active cities for VCs and startups.”

While the West claims 56.9% of all cash raised, “it’s home to just 23.7% of the U.S population, according to the latest Census data.” The South is “the most populous region, with a 38.3% share.”

New York “raised 12.4% of all cash, trailing only California, while longtime biotech hub Massachusetts (9.3%) comes in third.” Combined, those three account “for 69.5% of all venture funding in the U.S.”

Although VCs still primarily look for deals in their traditional coastal stomping grounds, “other locales are beginning to draw more dollars and attention.” Nearly every state “saw some activity in the past year—Alaska, North Dakota, and Mississippi were the only states that logged no deals at all.”

For more details on this update, check here.


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