Startups

Is the venture market slowing or did crossover funds just bounce?

Comment

Image Credits: Nigel Sussman (opens in a new window)

As third-quarter venture capital data rolls in, the TechCrunch crew is busy parsing the numbers. We’ve looked at fintech results, we’ve touched on the crypto market, and we have a climate startup venture analysis coming this weekend. We’ve also looked at the U.S. venture market and its global analog. The main gist is that while VC investment in the United States is slowing, it appears that the global venture capital market is retarding more rapidly.

The macro picture is, however, an aggregated dataset. By that, we mean that when we consider all venture capital activity, it often includes some non-venture funds. Say, a hedge fund piling into startups in partnership with traditional VC deal-making. Last year, an influx of non-traditional capital helped push total venture capital numbers to new heights, raising startup valuations, and, at times, cutting into the due diligence process and generally shaking up the VC game.


The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.


But now it appears that non-venture capital is ebbing away, leaving us with an interesting question: How much of the venture market slowdown is predicated on venture investors cutting check sizes and slowing their own deal-making cadence, and what fraction comes from non-venture investors simply bouncing?

Today we’re pulling from data concerning the United States to better understand that precise dynamic.

The bigger picture

The late-stage venture market is in decline, if we look at it from an aggregated perspective.

PitchBook data indicates that some $24.9 billion was invested into United States-based late-stage startup deals in Q3 2022. If you are curious how the dollar amount representing 1,249 late-stage deals is a disappointment, we hear you. But instead of measuring from zero up to $24.9 billion, we compare recent results with other data points, and in this case, the Q3 number was down by a staggering 48% from Q2 2022.

Even more, PitchBook writes that the Q3 late-stage investment total was an “11-quarter low.”

This is a bit weird. After all, we know that venture investors are flush and there are a host of hungry unicorns out there. What happened to the dollar value of late-stage deals? Some folks left.

PitchBook data indicates that the value of deals in Q3 that had participation from either a corporate venture capital group or a crossover investor collapsed from prior totals. The combined pairing of investor types took part in $20.8 billion worth of rounds in Q1 2021. That figure reached its zenith a few quarters later in Q3 2021, when the dollar value was $22.1 billion. More recently, 2022 has seen $16.8 billion, $12.3 billion and $7.2 billion in CVC/crossover-participated deals.

Given that corporate venture capital activity itself appears robust — per the same dataset — we can infer that crossover funds like Tiger are really out of the game.

TechCrunch+ wound up chatting through this concept before the data dropped with Kyle Stanford, who does analyst work for PitchBook. Here’s the key exchange:

TechCrunch+: Listening to you run through this, I’m forming an impression about last year’s venture market. It sounds almost like non-traditionals — crossover funds, etc. — rolled in, poured capital around like it was gravy, and distorted the hell out of everything, [getting] a lot of companies almost trapped now at a super [high valuation] without perhaps the fundamentals to back it up in a more conservative market. And then they left. And now we’re staring at a relatively healthy venture market — you know, angel/seed through Series B, Series C. But then after that, it’s almost like bunch of people wearing fancy watches that are broken, a facet of the crossover funds distorting things and then leaving?

Stanford: That’s probably something that’s going on right now. Right? I mean, [the non-traditionals] brought in [a lot of] money, and they’ve pumped up valuations and deal sizes, and these companies were expected to grow accordingly. [ … ]

So they’ve made these investments, and now they’re holding these probably overvalued securities that are unable to access the IPO market. And when you look at an acquisition, like Figma, you want to believe that that is a good sign but it seems like more of a one-off deal. And I don’t expect that many of the other companies should expect an Adobe to come in and kind of acquire them at a 50x ARR. Which sounds really ridiculous right now.

But I think we need to remember that the late-stage [startup market] it is really well capitalized. There’s been $300 billion invested in the late stage since the beginning of 2021. And so, there’s a lot of companies that still have a lot of cash. I’m not gonna [make] predictions on when the market’s going to turn around. But if [those well-capitalized companies] are able to make the cuts they need and lengthen their runway and have a decent underlying business with revenues that can help support them, then there should be a lot of companies that make it through to the other side. There are probably companies that will definitely take major down rounds, there are companies that will likely to go out of business from stages that in the past have seen very high success rates.

Stanford also pointed out that just the total value of mega-rounds — deals worth $100 million or more — added up to more last year than all the capital that was raised by venture investors during a then-record year. Put another way, the only way we got 2021 was thanks to a wave of capital from outside the venture game flooding in.

And if those non-traditionals are jumping ship, then perhaps a massive chunk of the declines we’re seeing more generally are not in the venture market per se, but more that folks who never really lived there packed up and headed for the highway now that summer is over.

More TechCrunch

Avendus, the top investment bank for venture deals in India, confirmed on Wednesday it is looking to raise up to $350 million for its new private equity fund.  The new…

Avendus, India’s top venture advisor, confirms it’s looking to raise a $350 million fund

China has closed a third state-backed investment fund to bolster its semiconductor industry and reduce reliance on other nations, both for using and for manufacturing wafers — prioritizing what is…

China’s $47B semiconductor fund puts chip sovereignty front and center

Apple’s annual list of what it considers the best and most innovative software available on its platform is turning its attention to the little guy.

Apple’s Design Awards nominees highlight indies and startups, largely ignore AI (except for Arc)

The spyware maker’s founder, Bryan Fleming, said pcTattletale is “out of business and completely done,” following a data breach.

Spyware maker pcTattletale says it’s ‘out of business’ and shuts down after data breach

AI models are always surprising us, not just in what they can do, but what they can’t, and why. An interesting new behavior is both superficial and revealing about these…

AI models have favorite numbers, because they think they’re people

On Friday, Pal Kovacs was listening to the long-awaited new album from rock and metal giants Bring Me The Horizon when he noticed a strange sound at the end of…

Rock band’s hidden hacking-themed website gets hacked

Jan Leike, a leading AI researcher who earlier this month resigned from OpenAI before publicly criticizing the company’s approach to AI safety, has joined OpenAI rival Anthropic to lead a…

Anthropic hires former OpenAI safety lead to head up new team

Welcome to TechCrunch Fintech! This week, we’re looking at the long-term implications of Synapse’s bankruptcy on the fintech sector, Majority’s impressive ARR milestone, and more!  To get a roundup of…

The demise of BaaS fintech Synapse could derail the funding prospects for other startups in the space

YouTube’s free Playables don’t directly challenge the app store model or break Apple’s rules. However, they do compete with the App Store’s free games.

YouTube’s free games catalog ‘Playables’ rolls out to all users

Featured Article

A comprehensive list of 2024 tech layoffs

The tech layoff wave is still going strong in 2024. Following significant workforce reductions in 2022 and 2023, this year has already seen 60,000 job cuts across 254 companies, according to independent layoffs tracker Layoffs.fyi. Companies like Tesla, Amazon, Google, TikTok, Snap and Microsoft have conducted sizable layoffs in the first months of 2024. Smaller-sized…

11 hours ago
A comprehensive list of 2024 tech layoffs

OpenAI has formed a new committee to oversee “critical” safety and security decisions related to the company’s projects and operations. But, in a move that’s sure to raise the ire…

OpenAI’s new safety committee is made up of all insiders

Time is running out for tech enthusiasts and entrepreneurs to secure their early-bird tickets for TechCrunch Disrupt 2024! With only four days left until the May 31 deadline, now is…

Early bird gets the savings — 4 days left for Disrupt sale

AI may not be up to the task of replacing Google Search just yet, but it can be useful in more specific contexts — including handling the drudgery that comes…

Skej’s AI meeting scheduling assistant works like adding an EA to your email

Faircado has built a browser extension that suggests pre-owned alternatives for ecommerce listings.

Faircado raises $3M to nudge people to buy pre-owned goods

Tumblr, the blogging site acquired twice, is launching its “Communities” feature in open beta, the Tumblr Labs division has announced. The feature offers a dedicated space for users to connect…

Tumblr launches its semi-private Communities in open beta

Remittances from workers in the U.S. to their families and friends in Latin America amounted to $155 billion in 2023. With such a huge opportunity, banks, money transfer companies, retailers,…

Félix Pago raises $15.5 million to help Latino workers send money home via WhatsApp

Google said today it’s adding new AI-powered features such as a writing assistant and a wallpaper creator and providing easy access to Gemini chatbot to its Chromebook Plus line of…

Google adds AI-powered features to Chromebook

The dynamic duo behind the Grammy Award–winning music group the Chainsmokers, Alex Pall and Drew Taggart, are set to bring their entrepreneurial expertise to TechCrunch Disrupt 2024. Known for their…

The Chainsmokers light up Disrupt 2024

The deal will give LumApps a big nest egg to make acquisitions and scale its business.

LumApps, the French ‘intranet super app,’ sells majority stake to Bridgepoint in a $650M deal

Featured Article

More neobanks are becoming mobile networks — and Nubank wants a piece of the action

Nubank is taking its first tentative steps into the mobile network realm, as the NYSE-traded Brazilian neobank rolls out an eSIM (embedded SIM) service for travelers. The service will give customers access to 10GB of free roaming internet in more than 40 countries without having to switch out their own existing physical SIM card or…

18 hours ago
More neobanks are becoming mobile networks — and Nubank wants a piece of the action

Infra.Market, an Indian startup that helps construction and real estate firms procure materials, has raised $50M from MARS Unicorn Fund.

MARS doubles down on India’s Infra.Market with new $50M investment

Small operations can lose customers by not offering financing, something the Berlin-based startup wants to change.

Cloover wants to speed solar adoption by helping installers finance new sales

India’s Adani Group is in discussions to venture into digital payments and e-commerce, according to a report.

Adani looks to battle Reliance, Walmart in India’s e-commerce, payments race, report says

Ledger, a French startup mostly known for its secure crypto hardware wallets, has started shipping new wallets nearly 18 months after announcing the latest Ledger Stax devices. The updated wallet…

Ledger starts shipping its high-end hardware crypto wallet

A data protection taskforce that’s spent over a year considering how the European Union’s data protection rulebook applies to OpenAI’s viral chatbot, ChatGPT, reported preliminary conclusions Friday. The top-line takeaway…

EU’s ChatGPT taskforce offers first look at detangling the AI chatbot’s privacy compliance

Here’s a shoutout to LatAm early-stage startup founders! We want YOU to apply for the Startup Battlefield 200 at TechCrunch Disrupt 2024. But you’d better hurry — time is running…

LatAm startups: Apply to Startup Battlefield 200

The countdown to early-bird savings for TechCrunch Disrupt, taking place October 28–30 in San Francisco, continues. You have just five days left to save up to $800 on the price…

5 days left to get your early-bird Disrupt passes

Venture investment into Spanish startups also held up quite well, with €2.2 billion raised across some 850 funding rounds.

Spanish startups reached €100 billion in aggregate value last year

Featured Article

Onyx Motorbikes was in trouble — and then its 37-year-old owner died

James Khatiblou, the owner and CEO of Onyx Motorbikes, was watching his e-bike startup fall apart.  Onyx was being evicted from its warehouse in El Segundo, near Los Angeles. The company’s unpaid bills were stacking up. Its chief operating officer had abruptly resigned. A shipment of around 100 CTY2 dirt bikes from Chinese supplier Suzhou…

1 day ago
Onyx Motorbikes was in trouble — and then its 37-year-old owner died

Featured Article

Iyo thinks its GenAI earbuds can succeed where Humane and Rabbit stumbled

Iyo represents a third form factor in the push to deliver standalone generative AI devices: Bluetooth earbuds.

2 days ago
Iyo thinks its GenAI earbuds can succeed where Humane and Rabbit stumbled