In an fascinating look at the state of the venture capital world from the perspective of supply and demand for capital, private equity data provider Pitchbook offered a view of the market that paints a picture that’s not as bright as some might want or expect. Here’s a review.

The State of Supply and Demand

The following graphic provides a view of the current state of the venture capital supply and demand picture. As shown, at least since 2017, the difference between the supply of capital for startups and the actual availability of capital has never been larger.

For late-stage venture capital backed companies, the demand surged to an amazing 2.5x, which means that startups demanded 2.5 times more capital than was available from venture capital investors.

The picture is not as dire for the venture growth companies, with a demand exceeding supply of 1.7x. The 1.7x figure is still far higher than previous estimates and presents a less-than-awesome picture for startup founders.

Lastly, the early-stage venture capital sector was estimated by Pitchbook to have a 1.5x multiple. Somewhat amazing. The 1.5x for early-stage venture capital backed companies far surpasses the previous high of around 1.1 in late 2019.

The Absolute View of the Startup Demand for Venture Capital Funding

The following picture provides an overall view of the demand for venture capital funding 2012 through the end of 2022. Overall, in 2020 through 2022, demand exploded across all classifications of venture funding.

The largest growth in demand stemmed from late-stage venture capital, which surged to an amazing almost $50 billion at the end of 2022. The late-stage venture capital demand was much larger than venture growth and early-stage venture capital demand, with both at around $10 billion.

What’s Behind the Rise in Demand for Venture Capital Funding?

Given this background, what’s behind the massive rise in demand for venture capital funding? Overall, the rise in demand likely stemmed from historically low interest rates and fear of missing out on the potential for outsized returns. Apparently, there’s nothing like worrying that a friend or competitor will do better than you to drive demand for capital! 🙂

Summing Up

Overall, the view presented by Pitchbook on the supply and demand for capital from newly minted startups suggests heavy competition for venture capital funding in the coming years. Whether this view plays out largely depends on founder demand, economic conditions, availability of relatively cheap capital, and the overall global economic picture. Time will tell. Stay tuned. How the supply and demand issue plays out could have far-reaching effects on the broader economic growth picture not only in the United States, but around the world.

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Every year around this time, private equity data provider Pitchbook releases its accounting of venture capital activity. This year’s report offers an interesting view into what happened in the venture capital world in 2022 compared to its recent history and what might be on the docket for 2023. Here’s a review.

Overall Deal Count

The first view is of overall deal count. In the following graphic, the red dots represent estimated deal count (right axis). Overall, deal counts declined each quarter over the course of 2022. Total deals went from a little over 5,000 in the first quarter to about 4,000 in the fourth quarter, for total estimated deals of 15,582. The 15,582 represents a drop of around 3,000 deals from the 2021 watermark of 18,521. Although having declined, activity over the course of 2022 was still strong by historical counts, with the 15,582 being the second highest on record.

Switching to deal value, deal value in 2022 also declined continually from the first quarter to the fourth quarter. On the whole, deal value reached $238 billion in 2022, a heavy decline from the $345 billion in 2021. As with the number of deals, although the 2022 figures were less than 2021, overall deal value was still much stronger than any prior year, with the next closest – 2020 – at about $171 billion.

Source: Pitchbook

The Late-stage Picture is Still Good

Moving to late-stage activity, overall activity in the latter half of 2022 was the friendliest since 2018 for investors. This represented a marked rise from the incredibly startup friendly 2021 year. If the current trend continues, the 2023 year may be one of the most investor friendly years on record.

Source: Pitchbook

Angel and Seed Activity

One of the main factors behind the slowing activity stems from the angel and seed stage picture. As shown below, angel and seed activity precipitously slumped over 2022. In the first quarter of 2022, the number of estimated deals stood at around 2,200, its all-time high. By the end of 2022, the number of deals had declined to about 1,500. Although having dropped throughout the year, the angel and seed deal value reached its all-time high of around $22 billion in 2022, beating 2021’s approximately $20 billion and far ahead of anything seen in the prior decade. Even though activity will likely continue to slow in 2023, activity will likely continue to be reasonably healthy in 2023 relative to what we’ve seen over the past 20 years.

Source: Pitchbook

Summing Up

Overall, although venture capital activity was weaker in 2022 compared to 2021, overall activity continues to be in healthy conditions, with overall activity back to pre-COVID levels. If activity continues its current trend, overall activity in 2023 will be on a healthy cruising altitude – not too hot, not too cold.

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In a fascinating review of what they call the “Unicorn Baby Boom and Bust”, private equity data provider Pitchbook recently released a study on what happened to the unicorn boom in 2022. Here’s a review.

The Unicorn Boom and Bust from a Broad View

The first chart put out by Pitchbook is the unicorn creation and cumulative valuation at time of minting. The figure shows a massive rise in both cumulative valuation and unicorn counts beginning in the second quarter of 2020.

Overall, from the second quarter of 2020 to the peak in the third quarter of 2021, unicorns’ cumulative valuations went from $81 billion to $379 billion. On counting the number of unicorns, the count of unicorns ballooned from 30 to 166 over the same period. Simply amazing! (And it goes to show you what simple money printing will do to asset prices :)).

Following the third quarter of 2021 peak, the decline has been precipitous. On cumulative valuation, unicorns’ values have dropped from the $379 billion peak to a fourth quarter of 2022 low of $33 billion. That’s a decline $346 billion over the course of a little over one year, or about 91%. On the unicorn counts, the decline has been just as awe-inspiring. Unicorn counts went from 166 in the third quarter of 2021 to 21 at the end of 2022.

If there’s one lesson to learn from this, it’s that financial activity and their associated valuations can turn on a dime. So, be vigilant.

Source: Pitchbook

Notable Unicorns

With this background, it’s still important to note that unicorn activity was still reasonable by historic standards. Some of the more notable unicorns of 2022 are shown in following table (provided by Pitchbook).

On top of the notable unicorn list is KuCoin, a cryptocurrency, blockchain, and fintech company headquartered in Seychelles with total amount of venture capital money raised to date of $180 million for a valuation of $10 billion.

The second noted unicorn is SumUp, with total amount of venture capital money raised to date of $692 million on a valuation of $8.2 billion.

Rounding out the top three is GAC Aion, headquartered in China. The company has raised almost $3 billion in venture capital to date on a valuation of $14.4 billion.

Other members of Pitchbook’s list include The Boring Company, Relex, Trade Republic, Hui Sheng Bio-Pharmaceutical, Qonto, Lendable, and SonarSource.

Source: Pitchbook

Summing Up

Overall, unicorn deal activity slowed to a crawl in 2022 following enormous growth in valuations and counts over the course of the COVID-19 pandemic. The unicorn world appears to have come back to earth, with 2022 activity more aligned with most of its history. Time will tell whether the 2023 year will provide a rebound from the decline or more of a cruising altitude moderation in activity.

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A Look at Real Assets

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Taking Stock of Private Equity Through the Third Quarter

November 22, 2022

This year has been one of introspection, especially if you’re a private equity investor. Although the global economy appears headed for a recession, private equity investors continue to be active in raising money and investing in profitable deals. Here’s a review according to Pitchbook’s most recent third quarter accounting. Which Firms are the Most Globally […]

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Which Universities Are on Top for Entrepreneurs?

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Looking at the Third Quarter of 2022 PE Breakdown

October 27, 2022

The overall private equity deal activity picture is fairly bright through the first three quarters of 2022. As of the end of September 2022, the estimated deal count reached 6,530, down from the full-year results of 2021 at 9,085. If the fourth quarter continues the trend we’ve seen through the first three, overall deal activity […]

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What Drives Talent to Large Investment Firms? 

October 11, 2022

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Which U.S. States are Winning Post-COVID Pandemic?

September 27, 2022

The COVID-19 pandemic changed the world – in some ways permanently – since it became a dominant force in February 2020. Looking at the U.S., which states have been the big winners from the shift in employment preferences of employees and which have been the losers? Here’s a look. The Overall Employment Picture The first […]

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