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U.S. VC investments and exits plummeted in 2022 | NVCA

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The deal count in 2022 for the fat year was once 15,852, down 14% from 18,521 in 2021. And deal payment was once $238.3 billion, down 30% from $344.7 billion a year earlier, in step with a mutter by Pitchbook and the Nationwide Mission Capital Affiliation (NVCA).

U.S. VC exit project was once 1,208 provides valued at $71.4 billion, down dramatically from 1,925 provides valued at $753.2 billion a year earlier

With every quarter the deal project declined and that can additionally foreshadow a dash in 2023, the mutter talked about.

On an annual foundation, angel- and seed-stage deal project remained rather resilient in 2022, with $21.0 billion invested all over an estimated 7,261 provides. On the other hand, the four consecutive quarters of declining deal counts would possibly additionally foreshadow a persevered dash in 2023. Seed-stage deal sizes and pre-money valuations demonstrated famous enhance over the 2021 figures due in share to replacement actively investing micro-funds as well as the participation of nontraditional and crossover shoppers.

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Could perhaps perhaps well also fair aloof the industrial downturn proceed, the NVCA expects this stage to commence to indubitably feel tension attributable to declining deal project and investor request within the early and leisurely phases.

Exit values of 2022.

Nontraditional shoppers are slowing their capital deployment to VC amid less gorgeous chance/return profiles. Relative to 2021, the upside potential for the VC asset class declined significantly in 2022, which was many shoppers far from the residence. As such, accurate $24.1 billion in deal payment fervent nontraditional shoppers in Q4— the lowest quarterly payment in three years. No longer finest are we seeing lower deal payment, but we’re additionally seeing fewer nontraditional individuals for the length of the venture ecosystem.

Exit project persevered its steep descent in 2022, with accurate $71.4 billion in whole exit payment generated—the major time this resolve has dipped below $100 billion since 2016. Public exits of VC-backed companies hang slowed to nearly nonexistent ranges, with accurate 14 public listings occurring in Q4, demonstrating how greatly institutional-investor appetite has been laid low with rising rates of interest and unstable macroeconomic factors.

Acquisition project has additionally declined significantly; Q4 posted roughly $763 million in whole acquisition deal payment, the major time now we hang considered this quarterly whole tumble below $1 billion in better than a decade.

VCs raised more money than ever in 2022.

VCs aloof raised a document $162.6 billion all over 767 funds, hitting a document for the 2nd straight year exceeding $150 billion.

The year saw an growing quantity of capital concentrated in better-sized funds led by experienced
managers for the length of the Bay Location and Contemporary York VC ecosystems. Despite this capital concentration, capital raised by emerging managers ended in the 2nd-ideal annual resolve on document, and several middle-market ecosystems sustained or increased their fundraising project in contrast with the prior year.

In December, the Morningstar PitchBook US Unicorn Index talked about this would possibly additionally veil a detrimental return from January 1, 2023 thru December 31, 2023. It predicted Series C and D rounds would be aware primarily the most down rounds, as these companies are currently primarily the most starved for capital.

It illustrious seed-stage startup valuations and deal sizes will proceed their ascent, reaching unusual annual highs irrespective of a slowdown in whole deal payment and count. And it talked about SPAC IPOs and mergers will proceed to tell no while liquidations will proceed to amplify in 2023.

It additionally predicted venture enhance deal payment will tumble below $50 billion within the U.S. VC mega-spherical project will tumble below 400 provides, hitting a 3-year low. And it talked about U.S. VC fundraising will tumble between $120 billion and $130 billion in 2023.
Rationale: As of December 1, 2022, the US Unicorn Index has returned 1.0%
YTD, while our VC-Backed IPO Index is down 59.1%. This disagreement is attributable to
several factors, no longer the least of which being that as regards to 200 unicorns were
created within the US this year. On the other hand, the tempo of most up-to-date unicorn creation, and the
tempo of unicorn rounds in frequent, has fallen precipitously in fresh months. In
November, fewer than 10 carried out rounds resulted in a put up-money valuation
of $1.0 billion or more, well below the Forty eight carried out in January, which saw the
year’s monthly high. With few unusual unicorn rounds declaring the recency
bias toward non-public values, public comparables will affect unicorn pricing
more, putting downward tension on the index as the general public market remains
downhearted.
Dangers: Whereas it continues to ogle less most likely, a public market turnaround would
push the Unicorn Index into obvious territory. No longer finest would growing public
similar costs put upward tension on non-public values, but unusual unicorns
and unusual financings for fresh unicorns would additionally proceed to hang a obvious
affect on the index as they hang got in 2022 and 2021.
The Morningstar PitchBook US Unicorn Indexes, which debuted in November, present
insight into the opaque pricing of unicorns, companies with a put up-money valuation
of $1.0 billion or more. The indexes are calculated each day using the most fresh non-public
valuations and changes in public and non-public similar companies.
Arguably a truly grand share of the pricing mannequin is the most fresh valuation
of a firm, pinning the price of a unicorn to its rate upon completion of the spherical.
The extra far from that spherical the firm will get (there is a roughly 18-month span
between unicorn rounds), public and non-public similar companies an increasing selection of affect
the firm’s valuation.
When we ogle on the 2022 US index return of 1.0%, the large sequence of unicorn rounds
all year long has tied many index constituents to their most up-to-date priced spherical,
most of which were at a valuation step-up. On the the same time, now we hang no longer but considered a
marked amplify in non-public firm down rounds all over the industrial slowdown.
In 2022, the median step-up for leisurely-stage valuations has been 2.1x—better than the
median step-up in 2021. On the other hand, this resolve has reduced rather like a flash for the length of
the year. The median leisurely-stage step-up in Q3 2022 was once accurate 1.8x, indicating that non-public
valuation enhance, which would underpin unicorn valuations, are growing at a mighty
slower payment. We request this trend to proceed in 2023 goodbye as the general public market is less
receptive to high-enhance, high-loss companies, as many unicorns have a tendency to be considered.
The US Unicorn Index has returned mighty better than what was once considered within the broader
public market or in our VC-Backed IPO Index. On the other hand, in November accurate nine provides were
carried out for a put up-money valuation of $1.0 billion or more. We squawk this trend will
proceed, potentially falling even extra as the tension created by stagnating payment in
the non-public market constrains project. We additionally squawk that down rounds and extra
slowing of valuation enhance have a tendency to be trends in US venture in 2023. These factors
will amplify the general public market’s pause on the index’s pricing.

Kyle Stanford, CAIA
Senior Analyst, US Mission Lead
kyle.stanford@pitchbook.com

3
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Outlook: Series C and D rounds would perhaps be aware primarily the most down rounds, as these
companies are currently primarily the most starved for capital.
Rationale: When we evaluate the estimated capital demanded by startups to
observed deal payment in every quarter, we are able to track deal project dislocations
within the market. Relative to ancient trends, all phases hang considered a huge
dislocation of deal project starting in Q4 2020, but nowhere is this more
pronounced than the leisurely stage. In Q4 2022, 3.5 times more capital was once
demanded than the deal payment observed. This would possibly additionally suggest that the leisurely stage
was primarily the most overextended all over the VC dealmaking frenzy of 2020 and

  1. As these companies grapple with the unusual reality of better rates of interest
    and stricter deal phrases, they is no longer going to be in a role to steal at their outdated paces,
    high money burn rates, or valuation ranges. Reckoning on how long it takes for the
    IPO window to originate, we would possibly additionally be aware these companies carve aid operations significantly
    to amplify runway on the expense of non permanent enhance. If or when these
    companies need extra capital from the non-public markets, many will must
    develop it at a diminished valuation.
    Dangers: Investors on the capitalization tables of these leisurely-stage companies
    would possibly additionally no longer are looking out to be aware their very indulge in investments written down and would possibly additionally aloof attain in
    to give a boost to those companies on the final spherical’s valuation to elongate the runway
    of the companies. Extra capital equipped to a firm to retain it afloat
    would possibly well per chance be higher than a failed industry. This occurrence would perhaps be particularly
    prevalent if 2023 begins off with a intently improved IPO market the keep shoppers
    can rationalize extra capital investment within the occasion that they be aware a light on the tip of the
    tunnel. Furthermore, shoppers that were anxious to be aware a share of these extremely
    valued companies would possibly additionally hang skimped on due diligence and would possibly additionally hang left
    themselves far more exposed than in phenomenal markets. This would possibly additionally amplify the
    incentive to ship correct money after dangerous, in an effort to keep up a correspondence.
    In the chart below, we scheme the estimated capital request by stage over that stage’s
    observed deal payment. This would possibly well be regarded as the quantity of request that was once
    fulfilled by the market, or a “tempo of dealmaking” metric. We are able to be aware below that
    companies within the leisurely stage are primarily the most capital-starved, with a request of 3.5 times
    what was once indubitably fulfilled in 2022. Their estimated capital request has considered the
    smallest quantity of give a boost to in phrases of observed deal project.
    We estimate the capital demanded by startups using a bottom-up analysis the keep

every deal generates estimates into the future primarily primarily based on ancient deal dimension step-
united statesand the distribution of time between rounds on the time of that fundraising. By

reviewing our reported deal payment over time, now we hang determined that we have a tendency to
add 10% of deal payment to the most fresh quarter attributable to a reporting and sequence
plug. Therefore, now we hang added 10% of deal payment to our reported deal payment within the
fresh quarter finest.
We be aware the ideal enhance in capital request relative to deal dimension on the leisurely stage

Alex Warfel, CFA
Quantitative Overview Analyst
alex.warfel@pitchbook.com

4
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

as a consequence of these companies are large ample to position capital to work in a major
potential. Smaller, early-stage companies would possibly additionally no longer hang had the potential to trace bigger
operations significantly in a market devour that of 2020 and 2021, when capital was once
cheap. On the other hand, this operational growth came with better ongoing charges
that required better funding in some unspecified time in the future if the earnings from those operations
would possibly no longer be transformed into earnings. When the funding market slowed down in 2022,
startups needed to reply with layoffs, capital raises from other sources equivalent to
venture debt, etc.

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

0.0x
1.0x
2.0x
3.0x
4.0x

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018 2019 2020 2021 2022*

Early-stage VC Slack-stage VC Mission enhance

3.5x
2.5x
1.4x

Estimated VC demanded as a multiple of observed deal payment by quarter

5
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Outlook: Seed-stage startup valuations and deal sizes will proceed their ascent,
reaching unusual annual highs irrespective of a slowdown in whole deal payment and count.
Rationale: Seed-stage startups are more insulated from public market volatility
than their early- and leisurely-stage counterparts as a consequence of they’re at primarily the most
nascent phases of the VC lifecycle. Having accurate raised their first spherical of
institutional capital, they’re farther far from an IPO and would possibly additionally bide their time
unless paths to liquidity reopen. Currently, and more prominently following

the 2022 economic downturn, shoppers traditionally allocating capital to leisurely-
stage startups hang moved upstream, focusing on the sooner stage to steal

better returns and stable entry to promising startups. Dramatic reductions
within the payment to commence and scale companies, the prolonged time between startup
foundings and seed rounds, and the growth of individuals on the seed stage
hang contributed to the pattern of a more sturdy pre-seed market. This
has ended in better capital raises and valuations on the seed stage which would possibly well per chance be more in
line with ancient metrics associated with Series A or later rounds. Furthermore,
the industrial downturn would possibly additionally space off shoppers to support seed startups to
develop extra capital, which would lengthen their runway past the 18-month
long-established and translate to better deal sizes at this stage.
Dangers: The frozen IPO market has diverted investment bucks traditionally
committed to leisurely-stage companies to younger startups. Could perhaps perhaps well also fair aloof market
stipulations aid and paths to liquidity return, seed-stage deal metrics would possibly additionally
stagnate or tumble in step with better test writers returning to their long-established
investment methods. Seed-stage startups hang a better payment of failure and thus
better investment chance; this would possibly additionally space off GPs to be wary of permitting deal sizes
and valuations to proceed growing as a consequence of more of their portfolios would possibly additionally
be exposed to this chance. Additionally, GPs would possibly additionally exercise stricter due diligence
of startups and limit seed-stage deal-metric enhance in inform to mitigate the
fresh years’ relaxed due diligence protocols, which hang ended in unsustainable
valuations hurting leisurely-stage startups and forcing them to steal into myth marking
down their portfolios.
Seed-stage startups are more feeble than they hang got ever been. With a median of 2.4
years since founding, they’re as regards to double the age of seed-stage startups a decade
ago. 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
document-high figures. Amid the tepid public market stipulations and the Federal Reserve’s
(the Fed’s) financial tightening, seed deal metrics hang increased QoQ. Q3 saw a
document-high median deal dimension of $3.3 million, reinforcing this stage’s insulated nature due
to the extended time to an IPO.
Extra supporting the prospect of seed-stage enhance in 2023 is the large sequence of
micro-funds (funds with less than $50 million in capital commitments) closed in fresh
years. Mission funds in overall trace their investments over a period of three to 5
years, so now we hang examined the micro-fund fundraising project over the final decade,
breaking it into 5-year sessions. In the 5-year period from 2018 to 2022, 1,770
micro-funds were closed, gathering $24.4 billion in capital commitments. In the
5-year period starting in 2013, 1,280 micro-funds were closed with accurate $15.6 billion in
commitments. The growing amounts of capital allocated to micro-funds as well as the

Max Navas
Analyst, Mission Capital
max.navas@pitchbook.com

6
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

sequence of micro-funds competing for provides hang bolstered seed-stage deal metrics in
fresh 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 document highs space by seed-stage metrics in 2022 are due in share to the
growth of micro-fund project over the final 5 years, and as a result we are able to steal
that there would perhaps be a wholesome sequence of micro-funds actively investing on the seed stage in
the coming year.
Passe leisurely-stage shoppers additionally play a major characteristic within the enhance of seed deal
metrics. Currently now we hang considered experienced managers equivalent to Tiger Worldwide,
Greylock Partners, and Andreessen Horowitz decide to investing or raising $1 billion,
$500 million, and $400 million, respectively, to support founders on the seed stage.1,2,3
The frequent need for better-dimension funds to write better exams in inform to withhold their
anticipated return profiles will give a boost to the enhance of seed-stage deal metrics within the
coming year.
As well as to leisurely-stage venture capitalists launching seed-stage funds, now we hang additionally
considered better venture capitalists amplify their participation in seed-stage provides and
using up the median deal dimension. The usage of PitchBook’s recordsdata, we examined the seed-stage
investment project of Accel, Andreessen Horowitz, Greylock Partners, Intel Capital,
Khosla Ventures, Kleiner Perkins, Lightspeed Mission Partners, and Sequoia Capital
between 2020 and 2022 and learned that the collective participated in 154 seed-stage
investments in 2020 and had already made 208 investments thru mid-December of

  1. The subset of 2020 seed investments had a median deal dimension of $4.0 million, well
    earlier than the the same year’s overall median seed-stage deal dimension of $2.0 million. Thru
    mid-December of 2022, the median deal dimension had increased to $6.4 million, additionally well
    earlier than the final median seed-stage deal dimension of $2.8 million. This project lends itself
    to our bullish potential of seed-stage deal-metric enhance within the next year.

1: “Tiger Worldwide Partners Commit $1 Billion for Early-Stage Tech Funds,” The Info, 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.

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

$0
$2
$4
$6
$8
$10

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

Prime and bottom quartile differ Prime decile Median Bottom decile Practical

Seed deal payment ($M) dispersion

7
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Outlook: SPAC IPOs and mergers will proceed to tell no while liquidations will
proceed to amplify in 2023.
Rationale: Elevated market volatility has dramatically downhearted valuations
in each public and non-public markets and has effectively halted public listings
thru 2022. This affect has been noticeable no longer accurate for old IPOs
but additionally for companies taking a ogle to head public by the usage of a SPAC. Rising rates of interest,
which affect particular person procuring for and borrowing energy and thus earnings for
companies, hang challenged the sky-high valuation multiples of 2020 and 2021.
Additionally, growing regulatory scrutiny has negatively affected the major
payment propositions that SPACs provide to non-public companies, equivalent to the potential to
attain public markets sooner than a old IPO. These factors, amongst others,
hang resulted in a though-provoking decline in SPAC issuance and combination project and
in quite loads of cases hang ended in SPAC dissolution and capital returning to shoppers.
We request these trends to be a using theme in 2023 as turbulent market
stipulations proceed to dampen investor and non-public firm interest in SPAC
vehicles.
Dangers: Going public by the usage of a SPAC can aloof be an gorgeous option for some
non-public companies, and given the large sequence of SPACs which hang but to hunt down
an acquisition target, it’s that that you would possibly perhaps well per chance imagine that we would perhaps be aware an increased sequence of
mergers in 2023. As pointed out in our most up-to-date US VC Valuations File, deal
payment and count hang reduced significantly for many leisurely-stage companies
and unicorns, demonstrating a peril to steal capital within the non-public market.
Having access to public capital by the usage of existing SPAC vehicles is on the total a doubtless route to
funding given IPOs were as regards to nonexistent this past year, even supposing there
will absolutely be challenges along the potential.
US SPAC project has reduced significantly in 2022 amid unstable public markets, with
accurate 78 SPAC mergers totaling $38.2 billion YTD. Our staff’s SPAC evaluate picture from
Q3 2022 observes that originate air of the SPAC spike in Q4 2021, here’s a continuation of the
trend now we hang considered for the reason that terminate of Q1 2021. Certainly, SPAC formations are additionally down
with accurate 69 SPAC IPOs observed this year, which is the lowest annual whole now we hang considered
since 2019. Given the propensity for SPAC favorability to coincide with obvious market
efficiency, we request these figures to proceed to tell no as we head into 2023.
Regulatory and right headwinds hang additionally contributed to the SPAC decline; most particularly,
in Q3 2022, President Biden signed the Inflation Low cost Act of 2022 into regulations. The
act integrated a nondeductible 1% excise tax on the repurchase of corporate stock by a
publicly traded US corporation after December 31, 2022. This excise tax would perhaps be aware to any
redemption by a US-domiciled SPAC, due to this incentivizing sponsors with no viable
target in be aware to terminate store earlier than the year’s terminate. We hang already observed this trend
as several high-profile SPACs hang liquidated this year, including two from Chamath
Palihapitiya’s investment agency Social Capital. With better than 450 SPACs currently on
the market with a merger deadline in 2023, half of which with carve-off dates in Q1 2023, we
request a major amplify within the sequence of SPAC liquidations by the tip of Q1 2023 as
shoppers gaze to recoup their capital and make investments in asset courses higher suited to navigate
the unusual market atmosphere.
Furthermore, public market efficiency of companies which hang long gone public by the usage of SPACs

Vincent Harrison
Analyst, Mission Capital
vincent.harrison@pitchbook.com

8
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

will play a characteristic in influencing investor appetite. Sadly, companies which hang
managed to head public by the usage of the SPAC route were particularly battered by turbulent
market stipulations; on the time of this writing, PitchBook’s DeSPAC Index reveals a -64.5%
YTD return for public companies which hang long gone the SPAC route, in contrast with -17.3%
and -29.6% YTD returns for the S&P 500 and Nasdaq, respectively. Whereas no longer a ideal
proxy for comparability, this gargantuan disagreement, amongst other factors, has curbed SPAC
formation and fundraising. We request SPAC formation to proceed its decline well into
2023, mad by no longer finest underperformance relative to predominant public index returns but
additionally growing regulatory scrutiny and overall market volatility. Additionally, of the more
than 450 SPACs aloof taking a ogle to strike a deal, we request better than 50% to liquidate and
return money to shoppers in 2023.

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

Provide: 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

229
556

69

0
100
200
300
400
500
600

$0
$50
$100
$150
$200

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

Aggregate put up payment ($B) Deal count

0%
20%
40%
60%
80%
100%
120%

Dec 2021 Jan 2022 Feb 2022 Mar 2022 Apr 2022 Could perhaps perhaps well also fair 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022*

DeSPAC Index S&P 500 Nasdaq

SPAC IPO project

DeSPAC Index versus public market indexes return

9
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Outlook: Mission enhance deal payment will tumble below $50 billion within the US.
Rationale: Our venture enhance dataset showcases the most fresh stage of VC and
would perhaps be regarded as a pre-IPO stage of investment. Mission enhance provides
are in overall a truly grand within the venture market, with the median deal coming
in at $20.0 million in 2022, double that of the leisurely stage. Being this large, the
venture enhance stage is intently reliant on nontraditional capital, particularly
from crossover shoppers, which hang like a flash retreated from the opportunistic
venture approach they hang got deployed over the past couple of years. This leaves
the venture enhance stage with a high sequence of companies and masses lower
capital availability. Alongside this, we would possibly additionally simply be aware fewer companies taking a ogle

to steal at this stage of VC, as a replacement focusing on sustainable enhance and payment-
cutting in inform to lead clear of the complex capital-raising market.

Dangers: An identical to the dangers associated with our Unicorn Index outlook, a public
market U-turn that begins to free up the high payment held by crossover shoppers
would possibly additionally pull these institutions aid into the venture market. No doubt one of many explanations
crossover investment project has been so high as of late is attributable to
the rather lower liquidity chance that VC investments on the enhance stage hang
presented. Bigger than 87% of the document $781.0 billion in exit payment generated in
2021 came from IPOs, which many enhance-stage companies will wish to trace
returns. There would possibly perhaps be additionally an infinite pocket of capital tied up in SPACs that would perhaps be
liquidated and recycled into the venture enhance market.
Our venture enhance stage highlights a tiny share of venture provides that myth
for a mighty better share of capital invested—5.5% of US deal count and 26.6% of
US deal payment in 2021, to be steady. The $90.9 billion in venture enhance investment
within the US VC market all over 2021 was once a document high by a large margin, with the prior
high-water keep being accurate $44.8 billion. The capital crunch on the terminate of the venture
market has shown to be particularly involving for venture enhance in 2022. Thru
November 23, finest $51.5 billion was once invested within the venture enhance stage.
The like a flash pullback from crossover shoppers is problematic for venture enhance
as a consequence of many provides inner this dwelling, particularly a truly grand, rely on nontraditional
capital. 80.5% of the venture enhance deal payment in 2021 integrated participation from
nontraditional companies. At some level of the final 5 years, an reasonable of 73.9% of venture enhance
deal payment derived from provides with nontraditional investor participation. The project
of these institutions is a will must hang.
In Q3 2022, crossover shoppers, a truly grand nontraditional shoppers, participated in
less than $12 billion in deal payment, making 211 investments all over all the venture
landscape. In comparison with the document quarters for every of these figures, each of
which took place in 2021, that’s $33.0 billion less and 304 fewer investments. The
unstable market has revealed nontraditional investor project in VC to be simply
opportunistic. For plenty of nontraditional shoppers, liquidity chance is high. Hedge funds
and mutual funds must remain liquid ample to carrier redemptions (mutual funds
hang strict liquidity rules), and the unusual economic native climate has shown to
trace the market far more illiquid than phenomenal.
When we ogle at our estimate for capital demanded and evaluate it with our

Kyle Stanford, CAIA
Senior Analyst, US Mission Lead
kyle.stanford@pitchbook.com

10
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

estimate for capital present for the stage, we be aware that a large gap has formed in

  1. This void of funding for venture enhance sets 2023 as much as be very involving
    for companies desiring capital. No longer finest would possibly additionally they remain unable to entry the
    public market thru IPO, but without the obligatory present of capital, that can
    in overall be wanted to fund large provides, it’s more most likely that companies that fetch
    themselves on the venture enhance stage will journey down rounds or even failure.

Provide: 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

429
491 542 511 480 526
608
674 720
988
738

0
200
400
600
800
1,000
1,200

$0
$20
$40
$60
$80
$100

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

Deal payment ($B) Deal count

Mission enhance deal project

11
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Outlook: 2023 US VC mega-spherical project will tumble below 400 provides, hitting a 3-
year low.

Rationale: Mega-rounds, outlined as rounds with deal sizes of $100 million or
more, hang change into more prevalent as of late with surplus capital and the
high sequence of shoppers chasing VC provides. The VC dealmaking atmosphere
of the outdated few years encouraged a enhance-at-all-charges mentality, encouraging
startups to attain aid to market sooner at better valuations and gaze better
amounts of capital. In the wake of the 2022 economic downturn, shoppers are
for the time being mad about the capital efficiency, course to profitability, and justifiable
valuations of startups. This shift in investor mentality, coupled with downhearted
public markets affecting leisurely-stage deal metrics and comparables analysis, will
thwart the mega-spherical project within the coming year.
Dangers: There are terminate to 1,300 privately held unicorns which were unable
bound public attributable to the frozen IPO market. Unicorns as well as startups which hang
previously raised mega-rounds have a tendency to steal a mega-spherical in a subsequent
financing as a consequence of their unprofitable operations would possibly additionally hang grown to require
extra large capital injections to retain their project unless an exit. 2021 was once
a document year for mega-rounds, and the companies that raised those rounds will
most likely wish to attain aid to market by 2023. Their return would possibly additionally prop up mega-spherical

project. Additionally, 2022 saw a document quantity of capital consolidate in better-
dimension VC funds. This consolidation would possibly additionally lead to better exams being written and

within the extinguish amplify the total sequence of mega-rounds subsequent year.
Mega-rounds hang fallen on a QoQ foundation for the length of 2022, from 201 rounds in Q1, to
161 rounds in Q2, to 103 rounds in Q3. Fascinated with the fourth quarter’s preliminary
recordsdata, we request a further 80 to 100 mega-rounds would perhaps be carried out, bringing
this year’s annual whole to around 550 provides. Stemming from the tension of public
market uncertainty and frozen paths to liquidity, this year’s mega-spherical project
would perhaps be a far yowl from the 836 mega-rounds observed in 2021. The usage of our prior
conjecture, extrapolating 2022’s fourth-quarter project, and staring at for a extra
slowdown leads us to request less than 100 mega-rounds would perhaps be observed per quarter,
culminating in a 2023 annual resolve of less than 400.
Most mega-rounds happen within the leisurely stage, so it’s pertinent to peep the unusual
dealmaking trends of startups in that stage. Slack-stage deal metrics hang fallen well
below 2021 figures, indicative of the unsustainable enhance fostered as of late.
Thru Q3 2022, the median leisurely-stage deal dimension was once $11.5 million, a 20.6% drop
from the 2021 fat-year resolve of $14.5 million. As median deal sizes decline, we are able to
request fewer mega-rounds to happen. The pinnacle-decile leisurely-stage deal dimension was once $75.0
million in Q3, a dramatic carve rate from the document high of $143.7 million in Q4 2021.
Even the very best-performing leisurely-stage provides are getting squeezed, making the
prospect of expansionary mega-spherical project within the coming year inconceivable.
Tandem to the dialog of mega-spherical project is the participation of
nontraditional shoppers, which overwhelmingly make a contribution to the enhance of the
ideal startups earlier than their public listings or other exit occasions. From 2018 to 2021,

nontraditional shoppers hang participated in 91% of mega-rounds and 93% of mega-
spherical deal payment per year on reasonable. Thru Q3 2022, nontraditional shoppers

Max Navas
Analyst, Mission Capital
max.navas@pitchbook.com

12
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

participated in mega-rounds with deal payment totaling $88.5 billion, significantly
less than the $181.9 billion in mega-spherical deal payment they participated in final year.
Nontraditional shoppers provide a obligatory capital source to support startups exceed
deal sizes of $100 million. If nontraditional shoppers lower their investment in VC
markets, mega-spherical project will tumble. We request nontraditional investor participation
to shrink extra within the coming year, limiting the sequence of startups that would possibly well
efficiently develop mega-rounds.
Lastly, it is obligatory we take care of the dangers of the plethora of startups that raised
mega-rounds in prior years potentially returning to market in 2023 to steal again.
The usage of PitchBook recordsdata, we examined the median time between rounds for startups
which hang raised mega-rounds and saw a median between 1.0 and 1.2 years from 2019
to 2022. Based completely mostly on this, we will level of interest on startups that raised mega-rounds final year,
as they’ll most likely wish to attain aid to market soon within the occasion that they hang got no longer already. Of the 832
startups that raised mega-rounds in 2021, 104 already returned to market this year,
which implies fewer of those startups will wish to attain aid in 2023. Due to the the harsher VC
atmosphere, we request a though-provoking sequence of the final startups to steal into myth venture
debt to supplement their need for equity financings. Startups that decide to steal venture
debt would possibly additionally reduce the burden on raising equity; let’s tell, if a startup were to
stable $50 million in equity and steal on $50 million in venture debt, their financing
spherical would no longer veil up as a mega-spherical irrespective of having mega-spherical capital. In the occasion that they
are unable to stable venture debt, they would possibly perhaps well additionally resort to down rounds with deal sizes
less than $100 million, gaze out acquirers to generate a liquidity occasion, or even exit
of industry. Consequently, we’re skeptical of the persevered enhance of mega-spherical
project within the coming year and forecast fewer than 400 rounds closing.

Provide: PitchBook | Geography: US
*As of September 30, 2022
0
50
100
150
200
250

$0
$10
$20
$30
$40
$50
$60

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2017 2018 2019 2020 2021 2022*

Deal payment ($B) Deal count

VC mega-spherical deal project by quarter

13
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Outlook: US VC fundraising will tumble between $120 billion and $130 billion in 2023.
Rationale: Despite US VC fundraising reaching a ancient high in 2022, we request
a slowdown to happen in 2023 as LPs grapple with liquidity issues and steal into myth
replacement investments in other asset courses positively laid low with rising
rates of interest. Declining public equity valuations would possibly well per chance make a “denominator
pause” for many LPs, equivalent to endowments, pension funds, and sovereign
wealth funds (SWFs), whose venture asset holdings change into too large relative
to other asset courses outlined of their mandates. Our in-depth methodology
for this phenomenon would perhaps be learned here. Declining public market valuations additionally
make a further liquidity crunch for many LPs, as public equity markdowns
lower the capital they’ll request to gain as lockup sessions for fresh exits
expire. Rising rates of interest, which would possibly well per chance be largely in payment for the downward trend
in equity valuations, hang additionally created lower-chance opportunities for LP capital
in other asset courses, taking far more consideration far from non-public market
fundraising.
Dangers: Allocations to venture sources inner an LP’s portfolio in overall signify
a tiny overall percentage; therefore, large reductions in allocations would possibly additionally
no longer happen. Furthermore, as pointed out in our Q3 2022 Worldwide Non-public Market
Fundraising File, established fund managers with successful track records,
particularly those that hang performed well irrespective of heart-broken market stipulations, hang had
sizable success in capitalizing on LP interest; 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 trend illustrates the chance for better,
established fund managers to amplify their market share of though-provoking LPs with
versatile allocation mandates in 2023.
The exit atmosphere of 2022 has been torpid relative to outdated years, with
accurate $63.4 billion in exit payment generated YTD (no longer including Adobe’s acquisition
of Figma, which is predicted to terminate in 2023), a major decline from final year’s
document of $781.5 billion. As discussed in our most up-to-date PitchBook-NVCA Mission
Video display, this year’s whole exit payment, which we request to be the lowest since 2016,
is a trusty reason within the aid of wretchedness as a consequence of the dearth of liquidity pushed by the slowdown in
exit project would possibly additionally discourage LPs from recycling capital into the VC ecosystem.
Even in cases the keep VC valuations would possibly additionally remain steady or are marked up, ensuing
in unrealized gains, money returns to LPs within the extinguish dictate the keep future bucks are
allocated, including to existing capital commitments or into unusual funds.
Additionally, sturdy markdowns in public markets hang diminished the quantity of
capital returns that endowments, pensions, and SWFs can request to gain if
and once they take hang of to sell shares from fresh exits whose lockup sessions hang
expired. The shortcoming of realized payment relative to 2021’s document exit payment era
is most likely to space off a capital crunch for many LPs, and this carve rate in capital locations
a tension on existing liquidation mandates, so there would possibly perhaps be most likely to be some hesitation
when mad by recycling any readily accessible money into the rather illiquid VC
market. Given the continuing uncertainty around public market stipulations, we request
the quantity of capital commitments from these shoppers to proceed to tell no
in 2023 as these companies ogle to meet liquidity rules and other mandates
outlined of their investor protection statements.

Vincent Harrison
Analyst, Mission Capital
vincent.harrison@pitchbook.com

COPYRIGHT © 2022 by PitchBook Info, Inc. All rights reserved. No share of this publication would possibly additionally be reproduced in
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recordsdata storage and retrieval methods—without the categorical written permission of PitchBook Info, Inc. Contents
are primarily primarily based on recordsdata from sources believed to be legit, but accuracy and completeness can’t be guaranteed.
Nothing herein must be construed as investment recommendation, a past, fresh or future recommendation to take or sell
any security or a proposal to sell, or a solicitation of a proposal to take any security. This cloth doesn’t purport to
comprise all the thought that a doubtless investor would possibly additionally devour to steal into myth and is now to not be relied upon as such or
feeble in substitution for the exercise of honest judgment.

14
PitchBook Analyst Effect: 2023 US Mission Capital Outlook

Curiosity rates hang marched upward for many of 2022 as the Fed continues its
most aggressive space of payment increases for the reason that Eighties. Whereas these payment increases
were the major reason within the aid of equity valuation declines in public and non-public
markets, they hang got inversely created a safer potential for shoppers to lock in obvious
returns in other asset courses. As of December 6, 2022, the benchmark 10-year
Treasury yield finished at 3.5%, while the two-year Treasury yield—which is even
more relaxed to terminate to-period of time Fed protection changes—finished at 4.4%. These figures
are some of the very best now we hang considered for the reason that 2007-2008 Worldwide Monetary Crisis.
Fascinated with the proven truth that better yields translate to falling bond costs, and better
chance-free rates amplify the return wanted from VC investments, it’s most likely we will
be aware shoppers allocating more capital to mounted-earnings instruments as a lower-chance
course to money returns. Doing so would theoretically lower the quantity of capital
allocated to other replacement, illiquid asset courses, equivalent to VC, thus extra
reducing fundraising ranges in 2023. On the other hand, it is obligatory to picture that many
shoppers predict a recession is on the potential, which can additionally within the extinguish lead the Fed to
terminate payment increases or lower them entirely, therefore reducing the fair appropriate looks of
this type of methodology.

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