Venture capital activity slows in first quarter after record breaking 2021

After a record-breaking 2021, venture capital (VC) dealmaking activity slowed significantly in the first quarter of 2022, according to the Q1 2022 PitchBook-NVCA Venture Monitor.

© Shutterstock

IPOs and exits of VC-backed startups dropped to $33.6 billion in exit value in the first three months of the year, down sharply from the three previous quarters, which were all over $192 billion, according to the report, produced by PitchBook and the National Venture Capital Association (NVCA). The slowdown was due in part to uncertainty in the broader markets.

However, investment activity remained strong as there was $70.7 billion in deal value in the first quarter, the fifth-highest total ever. However, deal sizes and valuations have begun to slow as the companies closest to the public market see public valuations reflected on them as they look to raise capital. Further, nontraditional investor participation is on track to set a new quarterly record but may face headwinds in the coming months as public market volatility continues and the Federal Reserve raises interest rates.

“Economic and geopolitical headwinds in the first quarter brought about change in the US venture ecosystem after the constant upward trajectory of prior years,” John Gabbert, founder and CEO of PitchBook, said. “Although fundraising momentum remained strong, we saw a softening across dealmaking and a significant drop off in IPO activity. The longevity of this quiet period will be critical to the health of the VC liquidity environment, given how concentrated VC exit value over the last two years has been with public listings. We expect to see the full impact of market volatility illustrated in the data over the next couple quarters.”

In addition, VC fundraising maintained the momentum of recent record years with more than $73.8 billion in commitments collected across 199 funds.

“The start of 2022 has shown signs of an expected adjustment for the VC industry on the heels of a two-year period where we constantly set new records and startups continually provided unique solutions to our global pandemic needs,” NVCA President & CEO Bobby Franklin said. “While the extent of this slowdown remains to be seen, VC investors are in a strong position with ample dry powder amassed in the recent fundraising quarters to fuel the entrepreneurs that amaze us by transforming how we live and work.”