Q2 VC Funding Globally Falls Significantly As Startup Investors Pull Back

Global funding slowed dramatically in the second quarter of 2022 as investors shied away from later-stage funding bets. It also marked the first quarter with a significant drop in funding since the beginning of 2020.

Funding reached $120 billion, the lowest amount recorded for a single quarter since the beginning of 2021, Crunchbase data shows.

Second-quarter funding fell 26% quarter over quarter from $162 billion in the first quarter and 27% year over year from $165 billion in the second quarter of 2021.

It’s worth noting that YoY comparisons are against 2021, which was a record year for venture funding. Funding for the second quarter of 2022 still exceeded every quarter in 2020, when each quarter tracked below—and in some cases well below—$100 billion.

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Late stage impacted

The funding stage most impacted last quarter was late-stage funding and technology growth funding, which fell 31% quarter over quarter and 38% year over year. The scaling back of late-stage funding is not that surprising in a period when tech IPOs have slowed and growth investors have signaled an interest in funding companies at earlier stages.

All told, funding at late stage came in at $66.7 billion, down from $108.4 billion in the second quarter of 2021.

Early stage slows

Early-stage funding fell by 18% quarter over quarter and by 9% year over year. Just over $44 billion was invested across more than 2,000 deals. This compares to $48.7 billion a year ago. Based on an analysis of Series A and B fundings, we attribute the decline to a drop in outsized rounds and less so to a decline in deal counts.

Seed grows

Bucking the trend,  seed funding remained strong last quarter, growing 9% year over year by funding amount and showing that, for now at least, this stage is less impacted by the downturn.

Still, seed funding fell quarter over quarter by around 18% compared to Q1 2022.

The seed stage’s relative strength is likely because startups at this stage tend to be the least impacted by the current market climate, as funding is not tied to revenue. In a market that has slowed down, the best funding opportunities are often sought at the earliest funding stages.

Unicorn counts

Billion-dollar valuations have slowed down, but not fallen off a cliff. We count 103 companies that joined The Crunchbase Unicorn Board in the second quarter of 2022, adding $167 billion in value to the board and $27.6 billion in equity funding raised. That contrasts with 134 in the first quarter of 2022 and 158 new unicorns in the second quarter of 2021.

This pace of new unicorns suggests that startup valuations still have a ways to come down in line with public market valuations for technology companies.

Market slowdown

There is a time lag between a funding negotiation, its close and the announcement. Hence funding amounts can take a few months to catch up with the current investment climate. This is the first quarter that shows a significant cut in funding since the beginning of 2020.

Increasingly this past quarter, venture investors have cautioned startups to adjust to a very different funding environment. Sequoia Capital‘s “crucible moment” presentation in May warned founders to prepare for a longer recovery period and to assume that capital will not be as easily accessible as before. Despite the caution, the firm has since announced two new funds focused on early-stage and growth companies, an indication that not all investors are slowing down.

Valuations have not come down significantly yet for those companies that have announced fundings of Series A through Series C in the second quarter, per a Crunchbase News analysis. However, growth equity investors as an asset class have already pulled back.

As growth equity slows, will venture funds that have raised record amounts pick up the slack?

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Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of July 5, 2022.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman