NVCA: Startups faced headwinds in US venture market in Q1

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Early results from data collected by the Pitchbook and the National Venture Capital Association (NVCA), the first three months of 2022 showed that startups experienced economic headwinds as they raised money from US venture capitalists.

The change in economic conditions is a lagging indicator and therefore the NVCA believes that this change will be more pronounced in the coming quarters. The full report will come later from the PitchBook-NVCA Venture Monitor.

The economic headwinds included volatile public markets, long-awaited Fed rate hikes and the ongoing war in Ukraine. That has caused the venture market to shift from its constant “up-and-to-the-right” movement. This has led to a marked decline in IPOs, an essential outlet for venture capital backed companies and their investors, at a time when the number of unicorns worldwide has grown to well over 1,000.

Economic conditions created by years of near-zero interest rates have fueled the growing interest and activity of non-traditional investors in the private markets, the NVCA said. These investors, and their large amounts of capital, have
have been major forces in many of the current VC trends. For many reasons, the venture market is at a crossroads, entering this time of uncertainty as a very different market than it was before the global financial crisis (GFC) or the dotcom bubble.


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Despite these headwinds, many areas of VC data appear relatively unscathed. Private data lags public markets, and market volatility caused a much softer move to venture numbers in the first quarter than many had anticipated. Initial financings were completed in near record time, nearly 200 VC mega deals (valued at $100 million or more) were completed and the proportion of completed deals involving CVC participation reached a new quarterly record.

“We expect to see the shift in the venture ecosystem illustrated in the data in the coming quarters. That said, we are already seeing certain areas within the market easing, especially when compared to the exuberance of the past few years.” according to the NVCA.

Public market performance and economic uncertainty caused a pause in VC’s exit value. Due to the poor performance of the public growth asset market, IPOs of VC-backed startups have almost completely halted in the first three months of 2022, and SPAC combination deals have only marginally outperformed.

This is especially in stark contrast to the surge in public listings in 2021 that nearly matched the frenzy of 2000. The longevity of this quiescent period will be critical to the health of the venture capital liquidity environment, given the concentrated venture capital exit value in public listings for the past two years, according to the NVCA.

The late stage is starting to show the effects of the turbulent market. Deal sizes and valuations have started to decline as the companies closest to the public market see public valuations reflecting on them as they seek to raise capital. Non-traditional investors, who are heavily involved in the late phase, are also likely to weaken their activity. This should significantly impact the value of the VC deal after years of record investment by these players, the NVCA said.

Fundraising kicked off in 2022 with the momentum of recent record-breaking years of fundraising, already raising more than $70 billion in pledges. While much of that total is in just a few funds, the added dry powder should help further insulate the risk market from immediate, major disruptions. A slowdown in fundraising is likely to show up last in the data as funds may be raising capital for a long time before being announced as closed.

“We expect emerging managers to have a harder time raising new funds in the near term as LPs rebalance their portfolios and allocate them to well-known or more established investors and managers,” the NVCA said.

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This post NVCA: Startups faced headwinds in US venture market in Q1

was original published at “https://venturebeat.com/2022/04/05/nvca-q1-showed-startups-face-headwinds-in-the-u-s-venture-market/”

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