Venture capital is on track to register its largest fundraising year on record despite the market correction.
So far this year, VC funds in the US have closed on $137.5 billion, just shy of 2021's full-year total of $142.1 billion, according to PitchBook data.
Just this month, Lightspeed raised $7.1 billion across four funds, Battery Ventures announced $3.8 billion in funding, and Oak HC/FT closed on a nearly $2 billion fund. In addition to these behemoth pools of capital, 47 other firms have raised their newest and, in most cases, largest-ever funds in July.
Miguel Luiña, head of global venture and growth equity for Hamilton Lane, which advises limited partners and backs venture funds. said,
"Over three-quarters of our venture managers were back with new fundraises within the last year."
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LPs have been overwhelmed by an unprecedented number of VC firms returning to market earlier than expected with larger fundraises. Pension funds, endowments and other mainstream limited partners operate under strict asset-allocation targets that limit how much venture exposure they can maintain. As a result, many LPs don't have room in their budgets to renew commitments with every one of their VC partners.
A handful of LPs told PitchBook that they had to let go of some venture relationships or resort to writing smaller checks to existing partners. These allocation constraints have disproportionately affected smaller and newer VC firms.
Still, PitchBook data shows that the fundraising environment turned out to be, on the whole, less difficult than predicted at the start of the downturn. However, overall 2022 VC fund activity is unlikely to increase significantly through the rest of the year, according to Luiña.
Luina says,
"There are still a few groups who are raising here and there, but the bulk of fundraising happened in the first half of this year, and so we're not expecting another big wave until the first quarter of next year."
COMMENTARY: Although VC firms are having a banner year raising capital for their investment funds and are likely to exceed the 2021 full-year total (Q2 '22 $137.5 billion vs Full Year 2021 $142.1 billion), but VC investments in startups have taken a plunge.
Global venture capital firms invested $108.5B across 7,651 deals last quarter — marking the biggest quarterly percentage drop in deals (and the second-largest drop in funding) in a decade. Despite this eye-opening decline, funding and deal totals remain above levels last seen in 2020.
US-based companies accounted for nearly half of all funding, with some of the largest rounds of the quarter going to Epic Games, SpaceX, and Intersect Power.
While markets could shift meaningfully during the second half of the quarter as both economic and geopolitical events unfold, assuming these investment trends continue, Q2’22 will see the lowest total for quarterly funding since the end of 2020. Other notable Q2’22 venture activity projections include:
- US deals and dollars are going down. US venture funding is projected to drop 13% in Q2’22, while deals are expected to decline by 22%. US companies are on track to raise $61B this quarter, the lowest total since 2020.
- Mega-rounds (deals worth $100M+) are projected to account for $61B of funding by the end of Q2’22, which would mark an 18% drop QoQ.
- Global funding for retail tech is on pace to drop by 50% in Q2’22, with fintech and digital health showing a QoQ decline of 28% and 25%, respectively.
- The IPO market is decelerating. The total number of companies going public in Q2’22 is projected to reach 92, marking a 9-quarter low and a 34% drop QoQ. US-based startups are expected to account for 20 of these IPOs, down 13% QoQ.
- M&A activity has not been spared from the slowdown; there is projected to be a 22% drop in global M&A activity in Q2’22. A similar trend is being seen in the US, where M&A deals are on pace to fall by 25% QoQ.
- The unicorn club is becoming a bit more exclusive. Quarterly unicorn births are on track to fall below 100 for the first time since 2020, with 62 unicorns projected to emerge in Q2’22.
Courtesy of an article dated August 3, 2022 appearing in Pitchbook and an article dated May 19, 2022 appearing in CBInsights and an article dated May 19, 2022 appearing in NFCA Blog
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