U.S. Venture Capital Dealmaking Plunges Amid Economic Uncertainty

Venture capital (VC) dealmaking in the U.S. dropped in the first half of the year, as investors evaded signing huge checks for startups because of market turmoil and uncertain macroeconomic conditions, according to a report on July 14.

The value of deals made in the first half of the year dipped to $144.2 billion, due to the current stock market rout prompted by red-hot inflation, fears of a looming recession, and hawkish rate rises, from $158.2 billion over the same period in 2021.

VC dealmaking climbed to an all-time high of over $340 billion last year, as firms lifted bets on biotech, high-tech, fintech, and healthcare startups, boosted by accommodative monetary policy and excess liquidity.

While investments in late-stage companies saw a major drop in average size and valuations from recent highs, financing in early-stage firms in the second quarter also came in below the record levels set in the previous year, according to the report by the National Venture Capital Association (NVCA) and PitchBook.

The pace of VC activity is also predicted to decline in the second half of the year as the threshold for completing deals increases and pricing uncertainty prolongs to the early stages of the investment cycle.

Furthermore, the door to possible billion-dollar exits has also shut with initial public offerings (IPOs) postponed against the backdrop of decreasing valuations and turbulent trading across U.S. exchanges.

John Gabbert, founder and chief executive of PitchBook, stated:

“Exits remain extremely low while late-stage companies act with caution as a result of bearish public market activity.”

The IPO market in the second quarter reached a 13-year low with only eight companies succeeding in listing. Only 22 VC-backed firms succeeded in listing in the first half of 2022 in comparison to 183 over the same period last year, and 108 in 2020, the report said.