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U.S. VC funding cools from 2021 record as investors keep their powder dry

Saturday, January 7, 2023
U.S. VC funding cools from 2021 record as investors keep their powder dry © Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Krystal Hu

(Reuters) - Funding for U.S. startups fell by one-third from their peak in 2021, according to PitchBook data released on Friday, despite record amounts of capital raised by new and existing venture funds.

Private venture-backed companies raised a total of $238.3 billion last year, 31% lower than the record of $344.7 billion in 2021, the data showed.

Despite being a challenging year for emerging fund managers, 2022 saw $162.6 billion closed across 769 funds, setting an annual record for capital raised and marking venture capital's rise as an asset class for money managers.

Sitting on a record pile of unused funds, investors are slowing deployment of the capital to private tech companies that are largely unprofitable amid a year of rising interest rates, geopolitical risks and public market volatility.

"VCs didn’t want to price a falling knives situation so things came to a near-screeching halt," said Pegah Ebrahimi, co-founder at FPV Ventures, a $450 million new fund launched in 2022. "No one wants to lean in when they aren’t sure how far the bottom is."

Public market performance continues to weigh on private market investor sentiment. Initial public offerings remain scarce, limiting exit options for VC investors. Revenue multiples for tech darlings such as enterprise software firms dropped to about 5.7 times revenue, versus 17 times one year ago, according to BVP Nasdaq Emerging Cloud Index.

While angel and seed-stage deal activity remains relatively resilient, growth and late stage firms now need to choose a "down round", which means target firms are valued less than their last round, or take structured financing with debt-like features that offer investors more downside protections.

Cybersecurity startup Snky raised $196 million in funding with a 12% drop in valuation, at $7.4 billion, in December. TripActions, a corporate travel and expense company took $150 million structured capital from Coatue Management.

"I think companies trying to raise again are faced with a pretty rude awakening," said Larry Aschebrook, Managing Partner at G Squared. "Investors are looking for more, and for the first time in recent years, that control of pricings is turned back over to the managers."

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21-02-2024 11:48:06 (UTC+7)

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EUR/USD

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 EUR/USD1.0814↑ Buy
 GBP/USD1.2631↑ Sell
 USD/JPY150.01↑ Buy
 AUD/USD0.6567Neutral
 USD/CAD1.3511Neutral
 EUR/JPY162.23↑ Buy
 EUR/CHF0.9527↑ Buy
 Gold2,041.25↑ Sell
 Silver23.192↑ Buy
 Copper3.8688Neutral
 Crude Oil WTI77.31↑ Buy
 Brent Oil82.65↑ Buy
 Natural Gas1.708↑ Buy
 US Coffee C188.03↑ Buy
 Euro Stoxx 504,759.75↑ Sell
 S&P 5004,975.51↑ Buy
 DAX17,068.43Sell
 FTSE 1007,719.21↑ Buy
 Hang Seng16,742.00Neutral
 Small Cap 20002,003.65↑ Buy
 IBEX 3510,038.20Sell
 BASF46.045↑ Sell
 Bayer28.77Neutral
 Allianz249.40Sell
 Adidas181.12↑ Buy
 Lufthansa7.339↑ Buy
 Siemens AG168.72Neutral
 Deutsche Bank AG11.954↑ Sell
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