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The deal depend in 2022 for the total yr was 15,852, down 14% from 18,521 in 2021. And deal worth was $238.3 billion, down 30% from $344.7 billion a yr earlier, based on a report by Pitchbook and the National Venture Capital Association (NVCA).

U.S. VC exit exercise was 1,208 offers valued at $71.4 billion, down dramatically from 1,925 offers valued at $753.2 billion a yr earlier

With every quarter the deal exercise declined and that might foreshadow a slide in 2023, the report mentioned.

On an annual foundation, angel- and seed-stage deal exercise remained comparatively resilient in 2022, with $21.0 billion invested throughout an estimated 7,261 offers. Nonetheless, the 4 consecutive quarters of declining deal counts might foreshadow a continued slide in 2023. Seed-stage deal sizes and pre-money valuations demonstrated notable progress over the 2021 figures due partly to a lot of actively investing micro-funds in addition to the participation of nontraditional and crossover buyers.


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Ought to the financial downturn proceed, the NVCA expects this stage to begin to really feel strain as a consequence of declining deal exercise and investor demand within the early and late levels.

Exit values of 2022.

Nontraditional buyers are slowing their capital deployment to VC amid much less engaging danger/return profiles. Relative to 2021, the upside potential for the VC asset class declined considerably in 2022, which turned many buyers away from the house. As such, simply $24.1 billion in deal worth concerned nontraditional buyers in This autumn— the bottom quarterly worth in three years. Not solely are we seeing decrease deal worth, however we’re additionally seeing fewer nontraditional members throughout the enterprise ecosystem.

Exit exercise continued its steep descent in 2022, with simply $71.4 billion in whole exit worth generated—the primary time this determine has dipped beneath $100 billion since 2016. Public exits of VC-backed corporations have slowed to virtually nonexistent ranges, with simply 14 public listings occurring in This autumn, demonstrating how drastically institutional-investor urge for food has been affected by rising rates of interest and unstable macroeconomic components.

Acquisition exercise has additionally declined considerably; This autumn posted roughly $763 million in whole acquisition deal worth, the primary time now we have seen this quarterly whole fall beneath $1 billion in additional than a decade.

VCs raised extra money than ever in 2022.

VCs nonetheless raised a file $162.6 billion throughout 767 funds, hitting a file for the second straight yr exceeding $150 billion.

The yr noticed an rising quantity of capital concentrated in larger-sized funds led by skilled
managers throughout the Bay Space and New York VC ecosystems. Regardless of this capital focus, capital raised by rising managers led to the second-largest annual determine on file, and a number of other middle-market ecosystems sustained or elevated their fundraising exercise in contrast with the prior yr.

In December, the Morningstar PitchBook US Unicorn Index mentioned it is going to present a adverse return from January 1, 2023 by means of December 31, 2023. It predicted Collection C and D rounds would see essentially the most down rounds, as these corporations are at the moment essentially the most starved for capital.

It famous seed-stage startup valuations and deal sizes will proceed their ascent, reaching new annual highs regardless of a slowdown in whole deal worth and depend. And it mentioned SPAC IPOs and mergers will proceed to say no whereas liquidations will proceed to extend in 2023.

It additionally predicted enterprise progress deal worth will fall beneath $50 billion within the U.S. VC mega-round exercise will fall beneath 400 offers, hitting a three-year low. And it mentioned U.S. VC fundraising will fall between $120 billion and $130 billion in 2023.
Rationale: As of December 1, 2022, the US Unicorn Index has returned 1.0%
YTD, whereas our VC-Backed IPO Index is down 59.1%. This distinction is because of
a number of components, not the least of which being that just about 200 unicorns have been
created within the US this yr. Nonetheless, the tempo of recent unicorn creation, and the
tempo of unicorn rounds typically, has fallen precipitously in latest months. In
November, fewer than 10 accomplished rounds resulted in a post-money valuation
of $1.0 billion or extra, nicely beneath the 48 accomplished in January, which noticed the
yr’s month-to-month excessive. With few new unicorn rounds sustaining the recency
bias towards personal values, public comparables will influence unicorn pricing
extra, placing downward strain on the index as the general public market stays
Dangers: Whereas it continues to look much less seemingly, a public market turnaround would
push the Unicorn Index into optimistic territory. Not solely would rising public
comparable costs put upward strain on personal values, however new unicorns
and new financings for present unicorns would additionally proceed to have a optimistic
influence on the index as they’ve in 2022 and 2021.
The Morningstar PitchBook US Unicorn Indexes, which debuted in November, present
perception into the opaque pricing of unicorns, corporations with a post-money valuation
of $1.0 billion or extra. The indexes are calculated day by day utilizing the newest personal
valuations and adjustments in private and non-private comparable corporations.
Arguably crucial piece of the pricing mannequin is the newest valuation
of an organization, pinning the worth of a unicorn to its worth upon completion of the spherical.
The additional away from that spherical the corporate will get (there’s a roughly 18-month span
between unicorn rounds), private and non-private comparable corporations more and more influence
the corporate’s valuation.
After we take a look at the 2022 US index return of 1.0%, the big variety of unicorn rounds
all year long has tied many index constituents to their most up-to-date priced spherical,
most of which had been at a valuation step-up. On the identical time, now we have not but seen a
marked improve in personal firm down rounds throughout the financial slowdown.
In 2022, the median step-up for late-stage valuations has been 2.1x—increased than the
median step-up in 2021. Nonetheless, this determine has decreased fairly shortly all through
the yr. The median late-stage step-up in Q3 2022 was simply 1.8x, indicating that personal
valuation progress, which might underpin unicorn valuations, are rising at a a lot
slower fee. We count on this pattern to proceed in 2023 as long as the general public market is much less
receptive to high-growth, high-loss corporations, as many unicorns are more likely to be seen.
The US Unicorn Index has returned a lot increased than what was seen within the broader
public market or in our VC-Backed IPO Index. Nonetheless, in November simply 9 offers had been
accomplished for a post-money valuation of $1.0 billion or extra. We consider this pattern will
proceed, probably falling even additional because the strain created by stagnating worth in
the personal market constrains exercise. We additionally consider that down rounds and additional
slowing of valuation progress are more likely to be developments in US enterprise in 2023. These components
will improve the general public market’s impact on the index’s pricing.

Kyle Stanford, CAIA
Senior Analyst, US Enterprise Lead

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Outlook: Collection C and D rounds will see essentially the most down rounds, as these
corporations are at the moment essentially the most starved for capital.
Rationale: After we evaluate the estimated capital demanded by startups to
noticed deal worth in every quarter, we are able to monitor deal exercise dislocations
out there. Relative to historic developments, all levels have seen a large
dislocation of deal exercise beginning in This autumn 2020, however nowhere is that this extra
pronounced than the late stage. In This autumn 2022, 3.5 instances extra capital was
demanded than the deal worth noticed. This might imply that the late stage
turned essentially the most overextended throughout the VC dealmaking frenzy of 2020 and

  1. As these corporations grapple with the brand new actuality of upper rates of interest
    and stricter deal phrases, they will be unable to boost at their earlier paces,
    excessive money burn charges, or valuation ranges. Relying on how lengthy it takes for the
    IPO window to open, we might even see these corporations lower operations considerably
    to extend runway on the expense of short-term progress. If or when these
    corporations want extra capital from the personal markets, many should
    elevate it at a diminished valuation.
    Dangers: Traders on the capitalization tables of those late-stage corporations
    might not wish to see their very own investments written down and will are available in
    to help these corporations on the final spherical’s valuation to increase the runway
    of the businesses. Further capital supplied to an organization to maintain it afloat
    can be higher than a failed enterprise. This prevalence could possibly be particularly
    prevalent if 2023 begins off with a closely improved IPO market the place buyers
    can rationalize extra capital funding in the event that they see a lightweight on the finish of the
    tunnel. Moreover, buyers that had been anxious to see a chunk of those extremely
    valued corporations might have skimped on due diligence and will have left
    themselves much more uncovered than in regular markets. This might improve the
    incentive to ship good cash after dangerous, so to talk.
    Within the chart beneath, we plot the estimated capital demand by stage over that stage’s
    noticed deal worth. This could possibly be regarded as the quantity of demand that was
    fulfilled by the market, or a “tempo of dealmaking” metric. We are able to see beneath that
    corporations within the late stage are essentially the most capital-starved, with a requirement of three.5 instances
    what was truly fulfilled in 2022. Their estimated capital demand has seen the
    least quantity of help when it comes to noticed deal exercise.
    We estimate the capital demanded by startups utilizing a bottom-up evaluation the place

every deal generates estimates into the long run primarily based on historic deal dimension step-
ups and the distribution of time between rounds on the time of that fundraising. By

reviewing our reported deal worth over time, now we have decided that we are likely to
add 10% of deal worth to the newest quarter as a consequence of a reporting and assortment
lag. Subsequently, now we have added 10% of deal worth to our reported deal worth within the
present quarter solely.
We see the most important progress in capital demand relative to deal dimension on the late stage

Alex Warfel, CFA
Quantitative Analysis Analyst

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

as a result of these corporations are giant sufficient to place capital to work in a significant
approach. Smaller, early-stage corporations might not have had the flexibility to broaden
operations considerably in a market like that of 2020 and 2021, when capital was
low-cost. Nonetheless, this operational growth got here with higher ongoing bills
that required higher funding sooner or later if the income from these operations
couldn’t be transformed into revenue. When the funding market slowed down in 2022,
startups needed to reply with layoffs, capital raises from different sources comparable to
enterprise debt, and so forth.

Supply: PitchBook | Geography: US
*As of December 1, 2022


Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn
2017 2018 2019 2020 2021 2022*

Early-stage VC Late-stage VC Enterprise progress


Estimated VC demanded as a a number of of noticed deal worth by quarter

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Outlook: Seed-stage startup valuations and deal sizes will proceed their ascent,
reaching new annual highs regardless of a slowdown in whole deal worth and depend.
Rationale: Seed-stage startups are extra insulated from public market volatility
than their early- and late-stage counterparts as a result of they’re on the most
nascent levels of the VC lifecycle. Having simply raised their first spherical of
institutional capital, they’re farther away from an IPO and may bide their time
till paths to liquidity reopen. In recent times, and extra prominently following

the 2022 financial downturn, buyers historically allocating capital to late-
stage startups have moved upstream, concentrating on the sooner stage to seize

bigger returns and safe entry to promising startups. Dramatic reductions
in the associated fee to start out and scale companies, the extended time between startup
foundings and seed rounds, and the growth of members on the seed stage
have contributed to the event of a extra strong pre-seed market. This
has led to bigger capital raises and valuations on the seed stage which can be extra in
line with historic metrics related to Collection A or later rounds. Furthermore,
the financial downturn might trigger buyers to encourage seed startups to
elevate extra capital, which might lengthen their runway previous the 18-month
customary and translate to bigger deal sizes at this stage.
Dangers: The frozen IPO market has diverted funding {dollars} historically
dedicated to late-stage corporations to youthful startups. Ought to market
circumstances enhance and paths to liquidity return, seed-stage deal metrics might
stagnate or fall in response to bigger test writers returning to their unique
funding methods. Seed-stage startups have the next fee of failure and thus
increased funding danger; this might trigger GPs to be cautious of permitting deal sizes
and valuations to proceed rising as a result of extra of their portfolios might
be uncovered to this danger. Moreover, GPs might train stricter due diligence
of startups and restrict seed-stage deal-metric progress as a way to mitigate the
latest years’ relaxed due diligence protocols, which have led to unsustainable
valuations hurting late-stage startups and forcing them to contemplate marking
down their portfolios.
Seed-stage startups are extra mature than they’ve ever been. With a median of two.4
years since founding, they’re almost double the age of seed-stage startups a decade
in the past. Their maturity has contributed to the median seed-stage deal dimension, valuation, and
step-up YTD of $2.8 million, $10.5 million, and 1.9x, respectively, surpassing 2021’s
record-high figures. Amid the tepid public market circumstances and the Federal Reserve’s
(the Fed’s) financial tightening, seed deal metrics have elevated QoQ. Q3 noticed a
record-high median deal dimension of $3.3 million, reinforcing this stage’s insulated nature due
to the prolonged time to an IPO.
Additional supporting the prospect of seed-stage progress in 2023 is the big variety of
micro-funds (funds with lower than $50 million in capital commitments) closed in latest
years. Enterprise funds sometimes make their investments over a interval of three to 5
years, so now we have examined the micro-fund fundraising exercise over the past decade,
breaking it into five-year durations. Within the five-year interval from 2018 to 2022, 1,770
micro-funds have been closed, amassing $24.4 billion in capital commitments. Within the
five-year interval beginning in 2013, 1,280 micro-funds had been closed with simply $15.6 billion in
commitments. The rising quantities of capital allotted to micro-funds in addition to the

Max Navas
Analyst, Enterprise Capital

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

variety of micro-funds competing for offers have bolstered seed-stage deal metrics in
latest years. The micro-funds closed from 2013 to 2017 largely contributed to the 2018
median seed-stage deal dimension and pre-money valuation of $1.8 million and $6.0 million,
respectively. The file highs set by seed-stage metrics in 2022 are due partly to the
growth of micro-fund exercise over the past 5 years, and because of this we are able to assume
that there can be a wholesome variety of micro-funds actively investing on the seed stage in
the approaching yr.
Conventional late-stage buyers additionally play a big function within the progress of seed deal
metrics. In recent times now we have seen skilled managers comparable to Tiger International,
Greylock Companions, and Andreessen Horowitz decide to investing or elevating $1 billion,
$500 million, and $400 million, respectively, to again founders on the seed stage.1,2,3
The overall want for larger-size funds to jot down bigger checks as a way to preserve their
anticipated return profiles will help the expansion of seed-stage deal metrics within the
coming yr.
Along with late-stage enterprise capitalists launching seed-stage funds, now we have additionally
seen bigger enterprise capitalists improve their participation in seed-stage offers and
driving up the median deal dimension. Utilizing PitchBook’s knowledge, we examined the seed-stage
funding exercise of Accel, Andreessen Horowitz, Greylock Companions, Intel Capital,
Khosla Ventures, Kleiner Perkins, Lightspeed Enterprise Companions, and Sequoia Capital
between 2020 and 2022 and located that the collective participated in 154 seed-stage
investments in 2020 and had already made 208 investments by means of mid-December of

  1. The subset of 2020 seed investments had a median deal dimension of $4.0 million, nicely
    forward of the identical yr’s general median seed-stage deal dimension of $2.0 million. Via
    mid-December of 2022, the median deal dimension had elevated to $6.4 million, additionally nicely
    forward of the general median seed-stage deal dimension of $2.8 million. This exercise lends itself
    to our bullish potential of seed-stage deal-metric progress within the following yr.

1: “Tiger International Companions Commit $1 Billion for Early-Stage Tech Funds,” The Data, Berber Jin, March 7, 2022.
2: “Greylock Raises $500M for Seeds,” Greylock Views, September 21, 2021.
3: “Introducing a16z’s Seed Fund,” Andreessen Horowitz, August 27, 2021.

Supply: PitchBook | Geography: US
*As of September 30, 2022


2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Prime and backside quartile vary Prime decile Median Backside decile Common

Seed deal worth ($M) dispersion

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Outlook: SPAC IPOs and mergers will proceed to say no whereas liquidations will
proceed to extend in 2023.
Rationale: Elevated market volatility has dramatically depressed valuations
in each private and non-private markets and has successfully halted public listings
by means of 2022. This influence has been noticeable not just for conventional IPOs
but in addition for corporations seeking to go public through a SPAC. Rising rates of interest,
which influence shopper shopping for and borrowing energy and thus earnings for
corporations, have challenged the sky-high valuation multiples of 2020 and 2021.
Moreover, rising regulatory scrutiny has negatively affected the first
worth propositions that SPACs provide to non-public corporations, comparable to the flexibility to
attain public markets quicker than a standard IPO. These components, amongst others,
have resulted in a pointy decline in SPAC issuance and mixture exercise and
in lots of instances have led to SPAC dissolution and capital returning to buyers.
We count on these developments to be a driving theme in 2023 as turbulent market
circumstances proceed to dampen investor and personal firm curiosity in SPAC
Dangers: Going public through a SPAC can nonetheless be a horny choice for some
personal corporations, and given the big variety of SPACs which have but to search out
an acquisition goal, it’s potential that we’ll see an elevated variety of
mergers in 2023. As identified in our newest US VC Valuations Report, deal
worth and depend have decreased considerably for a lot of late-stage corporations
and unicorns, demonstrating an issue to boost capital within the personal market.
Accessing public capital through current SPAC automobiles could possibly be a possible path to
funding given IPOs have been almost nonexistent this previous yr, although there
will definitely be challenges alongside the way in which.
US SPAC exercise has decreased considerably in 2022 amid unstable public markets, with
simply 78 SPAC mergers totaling $38.2 billion YTD. Our group’s SPAC analysis be aware from
Q3 2022 observes that outdoors of the SPAC spike in This autumn 2021, this can be a continuation of the
pattern now we have seen for the reason that finish of Q1 2021. Certainly, SPAC formations are additionally down
with simply 69 SPAC IPOs noticed this yr, which is the bottom annual whole now we have seen
since 2019. Given the propensity for SPAC favorability to coincide with optimistic market
efficiency, we count on these figures to proceed to say no as we head into 2023.
Regulatory and authorized headwinds have additionally contributed to the SPAC decline; most notably,
in Q3 2022, President Biden signed the Inflation Discount Act of 2022 into legislation. The
act included a nondeductible 1% excise tax on the repurchase of company inventory by a
publicly traded US company after December 31, 2022. This excise tax will apply to any
redemption by a US-domiciled SPAC, consequently incentivizing sponsors with no viable
goal in sight to shut store earlier than the yr’s finish. We’ve already noticed this pattern
as a number of high-profile SPACs have liquidated this yr, together with two from Chamath
Palihapitiya’s funding agency Social Capital. With greater than 450 SPACs at the moment on
the market with a merger deadline in 2023, half of which with deadlines in Q1 2023, we
count on a big improve within the variety of SPAC liquidations by the top of Q1 2023 as
buyers search to recoup their capital and put money into asset courses higher suited to navigate
the present market atmosphere.
Moreover, public market efficiency of corporations which have gone public through SPACs

Vincent Harrison
Analyst, Enterprise Capital

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

will play a job in influencing investor urge for food. Sadly, corporations which have
managed to go public through the SPAC route have been particularly battered by turbulent
market circumstances; on the time of this writing, PitchBook’s DeSPAC Index exhibits a -64.5%
YTD return for public corporations which have gone the SPAC route, in contrast with -17.3%
and -29.6% YTD returns for the S&P 500 and Nasdaq, respectively. Whereas not an ideal
proxy for comparability, this sizable distinction, amongst different components, has curbed SPAC
formation and fundraising. We count on SPAC formation to proceed its decline nicely into
2023, contemplating not solely underperformance relative to main public index returns however
additionally rising regulatory scrutiny and general market volatility. Moreover, of the extra
than 450 SPACs nonetheless seeking to strike a deal, we count on greater than 50% to liquidate and
return money to buyers in 2023.

Supply: PitchBook | Geography: US
*As of November 23, 2022

Supply: PitchBook | Geography: US
*As of November 25, 2022

$0.2 $0.8 $1.5 $2.9 $1.8 $7.6 $9.4 $15.9

$87.7 $166.0
10 7 $13.4 11 17 9 29 37 54





2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Combination put up worth ($B) Deal depend


Dec 2021 Jan 2022 Feb 2022 Mar 2022 Apr 2022 Might 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022*

DeSPAC Index S&P 500 Nasdaq

SPAC IPO exercise

DeSPAC Index versus public market indexes return

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Outlook: Enterprise progress deal worth will fall beneath $50 billion within the US.
Rationale: Our enterprise progress dataset showcases the most recent stage of VC and
could possibly be regarded as a pre-IPO stage of funding. Enterprise progress offers
are usually the biggest within the enterprise market, with the median deal coming
in at $20.0 million in 2022, double that of the late stage. Being this huge, the
enterprise progress stage is closely reliant on nontraditional capital, particularly
from crossover buyers, which have shortly retreated from the opportunistic
enterprise technique they’ve deployed over the previous couple of years. This leaves
the enterprise progress stage with a excessive variety of corporations and far decrease
capital availability. Alongside this, we might merely see fewer corporations trying

to boost at this stage of VC, as an alternative specializing in sustainable progress and cost-
slicing as a way to steer clear of the tough capital-raising market.

Dangers: Just like the dangers related to our Unicorn Index outlook, a public
market U-turn that begins to unlock the excessive worth held by crossover buyers
might pull these establishments again into the enterprise market. One of many causes
crossover funding exercise has been so excessive in recent times is due to
the comparatively decrease liquidity danger that VC investments on the progress stage have
offered. Greater than 87% of the file $781.0 billion in exit worth generated in
2021 got here from IPOs, which many growth-stage corporations might want to notice
returns. There’s additionally a big pocket of capital tied up in SPACs that could possibly be
liquidated and recycled into the enterprise progress market.
Our enterprise progress stage highlights a small portion of enterprise offers that account
for a a lot bigger portion of capital invested—5.5% of US deal depend and 26.6% of
US deal worth in 2021, to be precise. The $90.9 billion in enterprise progress funding
within the US VC market throughout 2021 was a file excessive by a large margin, with the prior
high-water mark being simply $44.8 billion. The capital crunch on the high of the enterprise
market has proven to be particularly difficult for enterprise progress in 2022. Via
November 23, solely $51.5 billion was invested within the enterprise progress stage.
The short pullback from crossover buyers is problematic for enterprise progress
as a result of many offers inside this house, particularly the biggest, depend on nontraditional
capital. 80.5% of the enterprise progress deal worth in 2021 included participation from
nontraditional corporations. Over the previous 5 years, a median of 73.9% of enterprise progress
deal worth derived from offers with nontraditional investor participation. The exercise
of those establishments is significant.
In Q3 2022, crossover buyers, the biggest nontraditional buyers, participated in
lower than $12 billion in deal worth, making 211 investments throughout all the enterprise
panorama. In contrast with the file quarters for every of those figures, each of
which occurred in 2021, that’s $33.0 billion much less and 304 fewer investments. The
unstable market has revealed nontraditional investor exercise in VC to be merely
opportunistic. For a lot of nontraditional buyers, liquidity danger is excessive. Hedge funds
and mutual funds should stay liquid sufficient to service redemptions (mutual funds
have strict liquidity rules), and the present financial local weather has proven to
make the market much more illiquid than regular.
After we take a look at our estimate for capital demanded and evaluate it with our

Kyle Stanford, CAIA
Senior Analyst, US Enterprise Lead

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

estimate for capital provide for the stage, we see {that a} extensive hole has shaped in

  1. This void of funding for enterprise progress units 2023 as much as be very difficult
    for corporations needing capital. Not solely might they continue to be unable to entry the
    public market by means of IPO, however with out the mandatory provide of capital, which is able to
    usually be wanted to fund giant offers, it’s extra seemingly that corporations that discover
    themselves on the enterprise progress stage will expertise down rounds and even failure.

Supply: PitchBook | Geography: US
*As of November 23, 2022

$7.8 $9.6

$17.6 $24.3 $22.0 $19.6 $29.5 $35.8 $44.8 $90.9 $51.5

491 542 511 480 526
674 720



2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Deal worth ($B) Deal depend

Enterprise progress deal exercise

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Outlook: 2023 US VC mega-round exercise will fall beneath 400 offers, hitting a three-
yr low.

Rationale: Mega-rounds, outlined as rounds with deal sizes of $100 million or
extra, have develop into extra prevalent in recent times with surplus capital and the
excessive variety of buyers chasing VC offers. The VC dealmaking atmosphere
of the previous few years inspired a growth-at-all-costs mentality, encouraging
startups to return to market faster at increased valuations and search bigger
quantities of capital. Within the wake of the 2022 financial downturn, buyers are
presently targeted on the capital effectivity, path to profitability, and justifiable
valuations of startups. This shift in investor mentality, coupled with depressed
public markets affecting late-stage deal metrics and comparables evaluation, will
thwart the mega-round exercise within the coming yr.
Dangers: There are near 1,300 privately held unicorns which have been unable
go public because of the frozen IPO market. Unicorns in addition to startups which have
beforehand raised mega-rounds are more likely to elevate a mega-round in a subsequent
financing as a result of their unprofitable operations might have grown to require
extra giant capital injections to maintain their exercise till an exit. 2021 was
a file yr for mega-rounds, and the businesses that raised these rounds will
seemingly must return to market by 2023. Their return might prop up mega-round

exercise. Moreover, 2022 noticed a file quantity of capital consolidate in larger-
dimension VC funds. This consolidation might result in bigger checks being written and

finally improve the overall variety of mega-rounds subsequent yr.
Mega-rounds have fallen on a QoQ foundation all through 2022, from 201 rounds in Q1, to
161 rounds in Q2, to 103 rounds in Q3. Contemplating the fourth quarter’s preliminary
knowledge, we count on an extra 80 to 100 mega-rounds can be accomplished, bringing
this yr’s annual whole to round 550 offers. Stemming from the strain of public
market uncertainty and frozen paths to liquidity, this yr’s mega-round exercise
can be a far cry from the 836 mega-rounds noticed in 2021. Utilizing our prior
conjecture, extrapolating 2022’s fourth-quarter exercise, and anticipating an extra
slowdown leads us to count on lower than 100 mega-rounds can be noticed per quarter,
culminating in a 2023 annual determine of lower than 400.
Most mega-rounds happen within the late stage, so it’s pertinent to look at the latest
dealmaking developments of startups in that stage. Late-stage deal metrics have fallen nicely
beneath 2021 figures, indicative of the unsustainable progress fostered in recent times.
Via Q3 2022, the median late-stage deal dimension was $11.5 million, a 20.6% drop
from the 2021 full-year determine of $14.5 million. As median deal sizes decline, we are able to
count on fewer mega-rounds to happen. The highest-decile late-stage deal dimension was $75.0
million in Q3, a dramatic discount from the file excessive of $143.7 million in This autumn 2021.
Even the highest-performing late-stage offers are getting squeezed, making the
prospect of expansionary mega-round exercise within the coming yr inconceivable.
Tandem to the dialog of mega-round exercise is the participation of
nontraditional buyers, which overwhelmingly contribute to the expansion of the
largest startups previous to their public listings or different exit occasions. From 2018 to 2021,

nontraditional buyers have participated in 91% of mega-rounds and 93% of mega-
spherical deal worth per yr on common. Via Q3 2022, nontraditional buyers

Max Navas
Analyst, Enterprise Capital

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

participated in mega-rounds with deal worth totaling $88.5 billion, considerably
lower than the $181.9 billion in mega-round deal worth they participated in final yr.
Nontraditional buyers provide a essential capital supply to assist startups exceed
deal sizes of $100 million. If nontraditional buyers scale back their funding in VC
markets, mega-round exercise will fall. We count on nontraditional investor participation
to shrink additional within the coming yr, limiting the variety of startups that may
efficiently elevate mega-rounds.
Lastly, it will be important we handle the dangers of the plethora of startups that raised
mega-rounds in prior years probably returning to market in 2023 to boost once more.
Utilizing PitchBook knowledge, we examined the median time between rounds for startups
which have raised mega-rounds and noticed a median between 1.0 and 1.2 years from 2019
to 2022. Primarily based on this, we’ll concentrate on startups that raised mega-rounds final yr,
as they’ll seemingly must return to market quickly in the event that they haven’t already. Of the 832
startups that raised mega-rounds in 2021, 104 already returned to market this yr,
that means fewer of these startups might want to return in 2023. Because of the harsher VC
atmosphere, we count on a good variety of the remaining startups to contemplate enterprise
debt to complement their want for fairness financings. Startups that decide to boost enterprise
debt might reduce the burden on elevating fairness; for instance, if a startup had been to
safe $50 million in fairness and tackle $50 million in enterprise debt, their financing
spherical wouldn’t present up as a mega-round regardless of having mega-round capital. In the event that they
are unable to safe enterprise debt, they might resort to down rounds with deal sizes
lower than $100 million, hunt down acquirers to generate a liquidity occasion, and even exit
of enterprise. Consequently, we’re skeptical of the continued progress of mega-round
exercise within the coming yr and forecast fewer than 400 rounds closing.

Supply: PitchBook | Geography: US
*As of September 30, 2022


Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3 This autumn Q1 Q2 Q3
2017 2018 2019 2020 2021 2022*

Deal worth ($B) Deal depend

VC mega-round deal exercise by quarter

PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Outlook: US VC fundraising will fall between $120 billion and $130 billion in 2023.
Rationale: Regardless of US VC fundraising reaching a historic excessive in 2022, we count on
a slowdown to happen in 2023 as LPs grapple with liquidity issues and take into account
different investments in different asset courses positively affected by rising
rates of interest. Declining public fairness valuations can create a “denominator
impact” for a lot of LPs, comparable to endowments, pension funds, and sovereign
wealth funds (SWFs), whose enterprise asset holdings develop into too giant relative
to different asset courses outlined of their mandates. Our in-depth methodology
for this phenomenon could be discovered right here. Declining public market valuations additionally
create an extra liquidity crunch for a lot of LPs, as public fairness markdowns
scale back the capital they will count on to obtain as lockup durations for latest exits
expire. Rising rates of interest, that are largely responsible for the downward pattern
in fairness valuations, have additionally created lower-risk alternatives for LP capital
in different asset courses, taking much more consideration away from personal market
Dangers: Allocations to enterprise belongings inside an LP’s portfolio sometimes symbolize
a small general share; due to this fact, giant reductions in allocations might
not happen. Moreover, as identified in our Q3 2022 International Personal Market
Fundraising Report, established fund managers with profitable monitor data,
particularly those that have finished nicely regardless of poor market circumstances, have had
nice success in capitalizing on LP curiosity; globally, 68.4% of whole VC raised
went to established managers in 2022, in contrast with 58.3% and 54.9% in 2021
and 2020, respectively. This upward pattern illustrates the chance for bigger,
established fund managers to extend their market share of energetic LPs with
versatile allocation mandates in 2023.
The exit atmosphere of 2022 has been torpid relative to earlier years, with
simply $63.4 billion in exit worth generated YTD (not together with Adobe’s acquisition
of Figma, which is anticipated to shut in 2023), a big decline from final yr’s
file of $781.5 billion. As mentioned in our most up-to-date PitchBook-NVCA Enterprise
Monitor, this yr’s whole exit worth, which we count on to be the bottom since 2016,
is an actual reason for concern as a result of the dearth of liquidity pushed by the slowdown in
exit exercise might discourage LPs from recycling capital into the VC ecosystem.
Even in instances the place VC valuations might stay steady or are marked up, ensuing
in unrealized good points, money returns to LPs finally dictate the place future {dollars} are
allotted, together with to current capital commitments or into new funds.
Moreover, robust markdowns in public markets have diminished the quantity of
capital returns that endowments, pensions, and SWFs can count on to obtain if
and after they select to promote shares from latest exits whose lockup durations have
expired. The shortage of realized worth relative to 2021’s file exit worth technology
is more likely to trigger a capital crunch for a lot of LPs, and this discount in capital places
a pressure on current liquidation mandates, so there’s more likely to be some hesitation
when contemplating recycling any out there money into the comparatively illiquid VC
market. Given the continued uncertainty round public market circumstances, we count on
the quantity of capital commitments from these buyers to proceed to say no
in 2023 as these corporations look to fulfill liquidity rules and different mandates
outlined of their investor coverage statements.

Vincent Harrison
Analyst, Enterprise Capital

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PitchBook Analyst Word: 2023 US Enterprise Capital Outlook

Rates of interest have marched upward for many of 2022 because the Fed continues its
most aggressive set of fee will increase for the reason that Nineteen Eighties. Whereas these fee will increase
have been the first reason for fairness valuation declines in private and non-private
markets, they’ve inversely created a safer approach for buyers to lock in optimistic
returns in different asset courses. As of December 6, 2022, the benchmark 10-year
Treasury yield completed at 3.5%, whereas the two-year Treasury yield—which is even
extra delicate to near-term Fed coverage adjustments—completed at 4.4%. These figures
are a few of the highest now we have seen for the reason that 2007-2008 International Monetary Disaster.
Contemplating the truth that increased yields translate to falling bond costs, and better
risk-free charges improve the return wanted from VC investments, it’s seemingly we’ll
see buyers allocating extra capital to fixed-income devices as a lower-risk
path to money returns. Doing so would theoretically scale back the quantity of capital
allotted to different different, illiquid asset courses, comparable to VC, thus additional
decreasing fundraising ranges in 2023. Nonetheless, it is very important be aware that many
buyers predict a recession is on the way in which, which might ultimately lead the Fed to
halt fee will increase or decrease them solely, due to this fact decreasing the attractiveness of
such a technique.

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