From a global perspective, the venture capital market for startup investment is slowing. Data shows that venture investment totals are falling, with the second quarter adding to declines seen in the first quarter of this year. After reaching a peak in late 2021, startups are seeing private-market-focused wallets close just a bit — even as capital continues to flow.
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While Q2 data is still coming out, we have both global data from Crunchbase News and an early look at the U.S. market from PitchBook to lean on. The image that forms is somewhat simple: Yes, the venture capital market is slowing, but in the United States, declines do not appear to be as bad as some warned they could be.
Think back to the March 2020 startup recession that lasted for a few weeks as COVID hit. We saw technology products dodge the negative economic impacts dogging the rest of the economy; that startup correction became a slingshot when it became clear that tech companies were going to see a growth boom instead of a bust as the world went remote.
Perhaps it should not be a surprise that, to date, the declines in American venture capital are not overly extreme as the worldwide pace of startup investment slows more than dramatically corrects. Are the folks making noise about a more difficult fundraising market crying wolf? Let’s look at the data and find out.
A global slowdown
In the second quarter of 2022, Crunchbase reported that some $120 billion was invested into startups. The data company reported that it was the first quarter to see funding levels fall on a year-over-year basis since early 2020. What about Q1 2022, if that is the case — didn’t venture totals fall at the start of the year as well as in Q2? Yes, but on a sequential quarterly basis, not when compared to year-ago results.
The $120 billion figure — off 27% compared to Q2 2021 and 26% compared to Q1 2022 — is still a larger result than we saw in any quarter of 2020. It’s a massive figure, in other words, indicative of a private capital market that is far from moribund. Why, then, all the concern on Twitter from founders worried about surviving and investors fretting about their portfolio companies failing to reach escape velocity? Investors love to say that good companies can always raise, so perhaps we’re seeing some in-market quality control turn into bitter tweets.
In more granular terms, late-stage venture capital’s declines were the largest in Q2, measured in dollar terms. After seeing $108 billion raised by late-stage startups around the world in the final three quarters of 2021, dollars invested into the most mature startups dipped to under $67 billion, Crunchbase reported. Early-stage fundraising has fallen from a Q4 2021 high of $66.0 billion to just $44.2 billion last quarter.
Seed deals, while off their Q1 2022 peak, are down sequentially around the world but still above their year-ago results; the downturn is not landing evenly across stages, in other words. Or geography, it appears.
What about the largest venture capital market?
TechCrunch noted in the wake of the first quarter that some regions, like Europe and Africa, appeared to be holding off a slowdown in their fundraising totals better than other markets. This time around, is the United States itself managing the same feat?
To some degree, yes. You might have expected the United States, where we saw some of the most bonkers valuations set last year, would suffer more than other markets. There’s some of that in the air, with PitchBook noting in its early look that Q2 2022 saw the “first quarter since Q4 2020 to post less than $77 billion in completed deal value [in the United States] with just over $62 billion closed.”
That said, the United States is currently on pace through the first half of 2022 to see more total rounds raised this year than in the last; some 9,412 were counted by the data source at the half-year mark, compared to a total of 17,637 last year. Deal size, however, has fallen “rather significantly across all stages,” PitchBook wrote. So similar deal volume, with smaller average ticket size. That is hardly a death sentence, yeah?
Naturally, we have more questions. Thinking geographically is only one axis across which we can parse the venture market. We’ll also need to segment by startup sector, for example, to truly understand what happened in the second quarter. (What is going on in fintech? I want to know.)
But from the highest possible vantage point, it’s hard to say that a venture market that can put $120 billion to work in a single quarter has closed up shop. Once upon a time, the startups of the world had to get by on less than $100 billion worth of capital every quarter. You know, every quarter that came before the start of 2021. We’re not even asking that of startups — just that they get by with a little bit less.
There’s a narrative coagulating in the market from both founders and investors — that many more startups than you might think are hitting plan or close to it. If that holds up, does the venture market regain its footing after realizing that many startups never lost theirs?
It is too early to call a bottom, but the data TechCrunch has seen thus far is more worrisome than apocalyptic, and we wonder if some solid results could put a floor underneath the pace of venture investing sooner rather than later. Especially in the United States, where we saw 1,400 seed rounds in the last three months alone.
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