“The 2022 venture capital market” is nearly a misnomer, as each quarter that passes seems to bring with it a new normal for startup investment. The pace of quarterly change in how venture investors are disbursing capital is making full-year numbers almost misleading.
The change inside of 2022, in other words, may at times mask just how much things have been evolving more recently; January and February feel like years ago in startup time not merely a few quarters back.
Such is the case with the early-stage venture capital market in the United States. PitchBook data paints two perspectives on what’s going on today for younger startups. The first is that 2022 will be, when it closes in less than three months, the second-wealthiest early-stage startup investing period in history. That’s good and we presume welcome news for founders.
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At the same time, however, given successive quarterly declines, we are also looking at an early-stage market in retreat. So is it more important to look at Q3 2022 data for venture segments than year-to-date data for the same, if our goal is to grade, or at least understand, the current startup investing climate?
Let’s examine the data and come to grips with what we’re seeing more recently, as well as how full-year data could get us into trouble in 2022 if we don’t further dissect the components that comprise the whole.
It was the best of times, it was the not-so-best of times
Through Q3 2022, PitchBook counts $55.8 billion worth of early-stage capital raised by startups in the United States across 4,031 rounds. In all of 2021, those numbers were $87.6 billion raised across 5,312 rounds. It’s clear that 2022 will not match, let alone best, what we saw in 2021 when it comes to the value of domestic early-stage venture activity.
But compared to 2020, 2022 is already kicking butt. In 2020, PitchBook counts $45.0 billion in United States-based early-stage investments from 3,480 rounds.
In other words, in just three quarters of this year, we’ve already seen more early-stage venture capital investment than in all of 2020 — and across more rounds to boot.
If 2021 was the best-ever venture market, that makes 2022 the second-best, right? Kinda. The first half of 2022 was certainly on pace for that crown, but if we observe the quarterly breakdown of domestic early-stage investing, you can see why we were hesitant to get too bold with our pronouncements:
- Q1 2020: $10.2 billion, 1,000 rounds
- Q2 2020: $9.2 billion, 712 rounds
- Q3 2020: $11.4 billion, 829 rounds
- Q4 2020: $14.2 billion, 936 rounds
- Q1 2021: $16.1 billion, 1,363 rounds
- Q2 2021: $21.5 billion, 1,256 rounds
- Q3 2021: $20.8 billion, 1,340 rounds
- Q4 2021: $29.3 billion, 1,353 rounds
- Q1 2022: $23.8 billion, 1,430 rounds
- Q2 2022: $18.4 billion, 1,183 rounds
- Q3 2022: $13.5 billion, 922 rounds
It goes up, it goes down. Notably, by Q3 2022, we are seeing fewer dollars and rounds invested than in Q4 2020. And if early-stage investing holds the same direction in Q4 of this year, we could see a number perhaps as low as we saw in the second quarter of 2020.
Given the huge strength of the first two quarters of 2022 when it comes to domestic early-stage investing, we are going to get the second-best result ever for the overall venture varietal. But if you go around telling founders that today, you might wind up making them feel bad and yourself look a bit silly.
Aggregated figures only help us when looking at markets from a historical perspective; those with boots on the ground care much, much more about the latest data. From that perspective, the early-stage market is rapidly slowing (deal count) and shrinking (dollar count). It’s now only as good as it was at the end of 2020 — and things could slip even further.
Certainly, other venture markets would kill for a fraction of just the early-stage U.S. venture market, let alone its full strength from angel deal-making through late-stage checks. But that doesn’t mean that folks only familiar with recent American norms will be comforted by the fact that some others have it worse.
We’re already back under the mark of 1,000 early-stage deals per quarter. How low can Q4 go?