After a particularly slow summer, the mood in venture capital seemed to change with the season come Labor Day. By the end of September, it felt that maybe the worst had already come in terms of this year’s falling venture funding numbers.
Investment volume had stopped declining and was starting to make up ground. Investors said that anecdotally it felt like the market was really starting to gain momentum again — especially at the early stages. But October funding data showed that the venture capital market still has a long way to go.
New data from Crunchbase estimates that $25.3 billion — not including growth — was invested globally into startups in October, a plateau from September’s $26.2 billion. This means we aren’t likely to see a meaningful recovery until at least next year; October is largely considered the last real, full month of normal deal-making before the holidays.
Deal count also continued to decline. There were 1,811 known deals in October, compared to 2,168 in September. Deals in October were down 43% from the same month last year, while funding was down 53%.
While these numbers only represent a snapshot into how the fourth quarter will shape up, Crunchbase isn’t the only data company seeing signs that VCs aren’t looking to boost their numbers by the end of this year.
Weekly data compiled by DocSend, which provides insight into how founders and VCs interact with startup pitch decks, shows a sharp drop-off in VC engagement after the first week of October 2022 as well.
DocSend found that interest in the pitch decks on its platform started to increase after Labor Day Weekend — which aligns with what the general market was seeing in terms of increased activity — but after the first week of October, VC engagement started to decrease again.
While DocSend’s analysis said that the quick reversal may be due to public companies reporting Q3 earnings, which weren’t that great across the board, or the impending Fed rate hikes, I don’t think that’s the crux of it.
From my perspective, even despite September’s funding boost, we are not going to see meaningful funding numbers — despite record levels of dry powder — until founders and VCs find a way to meet in the middle when it comes to valuations.
Valuations have started to come down, according to PitchBook data, but as senior VC analyst Kyle Stanford told me last month, from what they are seeing, it isn’t that valuations across the board are actually making any meaningful decreases, but rather that deals with lofty valuations are just not getting done as investors and founders sit in a stalemate.
This makes sense because, anecdotally, you are still absolutely hearing about companies that are looking to get the same type of valuations that we saw last year. VCs can’t really blame them for trying considering we recently discovered that VCs backed a company at a $32 billion valuation without ever seeing its balance sheet.
I’d imagine that, for the most part, the same number of companies have been trying to raise the last few months, and there won’t be a meaningful change there at least for the rest of this year. But until we start seeing actual down and flat valuation rounds, I think this high activity but low results will continue, likely into next year and until specific company situations become more distressed.