This year is supposed to be a venture-capital wasteland, especially when compared to 2021’s cycle-topping excess. And yet.
New data from PitchBook providing a first look at Q3 2022 venture capital aggregates in the United States make it a bit hard to square reality with the leading narrative. Data indicate that U.S. venture capital was perfectly healthy in the third quarter, and 2022 has been a good year.
There’s one exception that we’ll talk about, but it’s time that we realize that the doom-gloom narrative may be more price control from investors than an indictment of the present-day startup valuation landscape. We made a similar point back in July when we looked at Q2 data.
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If the first quarter of 2022 was strong, the second was not as much of a disappointment as anticipated, and Q3 is holding up — then at some point, we have to admit that the largest market for venture capital activity is slowing but hardly threatening to enter a recession.
We’ll have more data over the next few weeks, but how about a little good news today?
Down, but not out
According to PitchBook, the United States saw 11,871 known deals, a figure that the company extrapolates to 13,636 estimated total deals through Q3 2022. Those deals were worth a known $194.9 billion.
Breaking down the information into quarter-sized pieces, here’s what the year looks like in the United States:
- Q1: $80.0 billion/4,740 deals
- Q2: $71.9 billion/4,055 deals
- Q3 $43.0 billion/3,076 deals
From the above, you can see that deal and dollar volume are down in Q3 compared to prior quarters.
However, the Q3 data is preliminary and will fill in more over time. How do we know that? Apart from the fact that venture capital data is famously laggy, when we compare data from the Q2 2022 time frame from PitchBook, we can see that in the first half of 2022, the company previously counted $144.2 billion worth of deals across 9,421 estimated transactions. Now with Q3 behind us, PitchBook has $151.9 billion worth of transactions for the first six months of 2022 on file from 8,795 known deals.
So we can expect that more dollars will flow into the Q3 2022 column as time passes. And perhaps more deals, too; PitchBook counts 11,871 known deals thus far in 2022 in its latest dataset, indicating that it expects another 1,765 to become known in time for the Q1-Q3 period.
So what?
Compared to the first half of the year, the pace of venture deal-making slowed in Q3. But 2022 is on pace to trounce any year’s venture totals that we have data for apart from 2021. So it’s perhaps better to consider how this year is stacking up compared to the second-best venture capital year that we can recall.
There’s even optimism on the horizon that venture investors are going to get even busier in Q4 than they have in recent periods; the situation we’re describing above could in fact improve.
What gives? I think that Rebecca Szkutak said it well the other day in her note on what venture investors are really looking for:
Two investors recently told me that growth-over-everything investing was still largely the only strategy for many VCs despite Twitter threads that probably gave their existing portfolio companies advice whiplash. Angela Lee, a venture capital professor at Columbia University, told TechCrunch she never really believed the change in tune to begin with.
“I don’t think investors were ever prioritizing profitability over growth despite what they were saying,” she said, followed by a laugh.
Sound familiar? Yeah, that’s the 2021 vibe alive and well in 2022, and the numbers back it up. This year is not some dramatic repudiation of last year’s venture capital excess; it’s more of a slightly truncated continuation. There’s just too much capital yet in the private-market game for things to slow down too much.
If venture capital activity does accelerate in Q4 from Q3’s results as some expect, we could wind up with rather impressive totals for the year here in the U.S. Using PitchBook data and our own calculations, if we annualize known venture data from the United States’ first three quarters of the year, we get the following set of comparative metrics:
- 2020 venture deal count: 12,813
- 2020 venture dollar count: $168.7 billion
- 2022 annualized venture deal count: 18,181 (inclusive of PitchBook’s estimated deals for Q3)
- 2022 annualized venture dollar count: $259.9 billion
Oh no, what will startups do? Be fine? Keep raising at a pace in 2022 that more than doubles what Europe managed in 2021? It’s hard to find tears for the situation.
If you do want to find space in your heart to feel sorry for any particular startup cohort, perhaps the late-stage market is where we can anchor modest pity. Despite a share of deal volume in 2022 that is the best since 2009, a modest dip in pre-money valuations for late-stage startups has formed this year. Indeed, in 2021, the median pre-money valuation for a late-stage venture deal in the United States was $100 million. Thus far in 2022, that figure totals $91 million. (Again, oh no.)
But past that data point, the United States is still more than flush with capital — and it shows.
More on venture capital fundraising shortly. For now, happy hunting, founders.