US Venture Capital Market Deal Count for Private Firms Declines 29% YoY: Report

The global economy took a downward turn in 2022, “leaving behind 2021’s environment of easy money and soaring valuations,” according to an update from Carta.

The U.S. venture capital market “followed suit.” Venture deal count for private companies on Carta in 2022 “declined 29% year over year, while the value of those investments fell more than 50%.” Both of those annual figures “had increased each of the prior five years.”

There were plenty of other shifts in the venture market in Q4, the team at Carta noted in a blog post while adding that investments “worth less than $5 million became more common, while mega-deals fell out of favor.” The frequency of bridge rounds “boomed.” And deal sizes are decreasing “at nearly every stage of the startup lifecycle.”

Q4 highlights

Median valuations are “trending down at every stage.”

Seed and Series A valuations “ticked down only slightly, but later stages experienced much larger drops—at Series E+, median valuations fell 72% year over year, reaching their lowest point since the 2010s.”

Founders are “playing the waiting game.” The average wait time “in between venture rounds climbed to recent highs in Q4 at several stages.” The average interval “between a Series A round and a Series B rose to 893 days, or about two years and five months.”

This means companies “need more runway than ever.”

The South is “picking up steam.” Companies in the region “brought home 15.5% of all venture capital funding in the U.S. last year, a notable uptick from 11.7% the year prior.” The South was also “the fastest-growing region in the U.S. last year in terms of population.”

The Carta report added that last year’s counts for deal volume and deal value “are both down significantly year over year.”

But it would “have been difficult to maintain the frantic pace of activity from 2021, when investment totals rocketed past previous records.” On a longer timeline, 2022 actually continued an upward trend: Last year “saw more venture deals and more capital invested than any year between 2016 and 2020.” However, the number of companies in Carta’s dataset “is also higher today than it was five years ago.”

Last year’s activity was front-loaded. Venture investors “put more than $40 billion to work during the first quarter of the year.” By Q4—typically the strongest quarter for venture activity—that figure “had fallen below $15 billion.” In fact, in terms of both venture deal count and dollars invested, Q4 was “the slowest quarter on Carta since 2018.”

As noted in the report from Carta:

“Deal count has now declined in two consecutive quarters for just the second time in the past seven years; the other occurrence was in Q1 and Q2 of 2020, when the onset of the pandemic sent global markets into turmoil. Then, as now, the primary reason for the slowdown is uncertainty. Investors are still seeking clarity on many of the now-familiar factors that roiled markets last year, including rising interest rates, the effects of inflation on consumer spending, and war in Ukraine.”

As mentioned in the update, nearly half of all venture capital raised last year went to companies “based in California, reaffirming Silicon Valley’s role as the industry’s beating heart.”

But “the gradual diversification of venture capital continues. California’s share of 46.2% in 2022 was a decline from 47.5% in 2021.”

As noted in the report:

“Many of the states that gained the largest share of venture investment are located in the South. Florida jumped to 3.2% of all cash raised in 2022, up from 1.7% in 2021. Virginia jumped from 0.7% to 1.2%, North Carolina went from 0.6% to 1.1%, and the District of Columbia went from 0.5% to 1%. Overall, the South’s share of venture cash raised in the U.S. climbed from 11.7% in 2021 to 15.5% in 2022.”

The report further noted:

“The downward trends that were already underway at these earlier stages mostly accelerated during Q4—with the exception of deal count at Series B, which saw a slight uptick. Deal counts at both seed and Series A, on the other hand, suffered their largest quarterly declines of the year. At all three stages, deal activity is down more than 50% year over year.”

Total cash raised in seed rounds is “down 68% from its recent peak.” Series A cash “raised is down 77% from its recent high, and Series B has undergone a 79% decline.” Total cash raised at Series B has now “decreased in four consecutive quarters.”

No stage of the startup lifecycle “has taken a bigger hit to activity than Series D.”

Companies on Carta “raised just 22 Series D rounds in Q4 and pulled in less than $650 million in cash.” That latter figure is “down a stunning 92% year over year.”

As stated in the report:

“There were some positive signs at other stages: Series C deal count increased by 13% quarter over quarter, and overall cash raised at Series E+ rose by 10%. But both of those stages had already experienced significant declines in prior quarters. Overall, the venture market for late-stage companies remains gloomy.”

For more details on this update, check here.

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