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.