U.S. VC Investments And Exits Plummeted In 2022 | NVCA

VC investments slowed in 2022.

Image Credit: Pitcbook/NVCA

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The deal count in 2022 for the full year was 15,852, down 14% from 18,521 in 2021. And deal value was $238.3 billion, down 30% from $344.7 billion a year earlier, according to a report by Pitchbook and the National Venture Capital Association (NVCA).

U.S. VC exit activity was 1,208 deals valued at $71.4 billion, down dramatically from 1,925 deals valued at $753.2 billion a year earlier

With each quarter the deal activity declined and that could foreshadow a slide in 2023, the report said.

On an annual basis, angel- and seed-stage deal activity remained relatively resilient in 2022, with $21.0 billion invested across an estimated 7,261 deals. However, the four consecutive quarters of declining deal counts could foreshadow a continued slide in 2023. Seed-stage deal sizes and pre-money valuations demonstrated notable growth over the 2021 figures due in part to a large number of actively investing micro-funds as well as the participation of nontraditional and crossover investors.


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Should the economic downturn continue, the NVCA expects this stage to start to feel pressure due to declining deal activity and investor demand in the early and late stages.

Exit values of 2022.

Nontraditional investors are slowing their capital deployment to VC amid less attractive risk/return profiles. Relative to 2021, the upside potential for the VC asset class declined significantly in 2022, which turned many investors away from the space. As such, just $24.1 billion in deal value involved nontraditional investors in Q4— the lowest quarterly value in three years. Not only are we seeing lower deal value, but we are also seeing fewer nontraditional participants within the venture ecosystem.

Exit activity continued its steep descent in 2022, with just $71.4 billion in total exit value generated—the first time this figure has dipped below $100 billion since 2016. Public exits of VC-backed companies have slowed to almost nonexistent levels, with just 14 public listings occurring in Q4, demonstrating how drastically institutional-investor appetite has been affected by rising interest rates and volatile macroeconomic factors.

Acquisition activity has also declined significantly; Q4 posted roughly $763 million in total acquisition deal value, the first time we have seen this quarterly total fall below $1 billion in more than a decade.

VCs raised more money than ever in 2022.

VCs still raised a record $162.6 billion across 767 funds, hitting a record for the second straight year exceeding $150 billion.

The year saw an increasing amount of capital concentrated in larger-sized funds led by experienced

managers within the Bay Area and New York VC ecosystems. Despite this capital concentration, capital raised by emerging managers led to the second-largest annual figure on record, and several middle-market ecosystems sustained or increased their fundraising activity compared with the prior year.

In December, the Morningstar PitchBook US Unicorn Index said it will show a negative return from January 1, 2023 through December 31, 2023. It predicted Series C and D rounds would see the most down rounds, as these companies are currently the most starved for capital.

It noted seed-stage startup valuations and deal sizes will continue their ascent, reaching new annual highs despite a slowdown in total deal value and count. And it said SPAC IPOs and mergers will continue to decline while liquidations will continue to increase in 2023.

It also predicted venture growth deal value will fall below $50 billion in the U.S. VC mega-round activity will fall below 400 deals, hitting a three-year low. And it said U.S. VC fundraising will fall between $120 billion and $130 billion in 2023.

Rationale: As of December 1, 2022, the US Unicorn Index has returned 1.0%

YTD, while our VC-Backed IPO Index is down 59.1%. This difference is due to

several factors, not the least of which being that nearly 200 unicorns have been

created in the US this year. However, the pace of new unicorn creation, and the

pace of unicorn rounds in general, has fallen precipitously in recent months. In

November, fewer than 10 completed rounds resulted in a post-money valuation

of $1.0 billion or more, well below the 48 completed in January, which saw the

year’s monthly high. With few new unicorn rounds maintaining the recency

bias toward private values, public comparables will impact unicorn pricing

more, putting downward pressure on the index as the public market remains


Risks: While it continues to look less likely, a public market turnaround would

push the Unicorn Index into positive territory. Not only would increasing public

comparable prices put upward pressure on private values, but new unicorns

and new financings for current unicorns would also continue to have a positive

impact on the index as they have in 2022 and 2021.

The Morningstar PitchBook US Unicorn Indexes, which debuted in November, provide

insight into the opaque pricing of unicorns, companies with a post-money valuation

of $1.0 billion or more. The indexes are calculated daily using the most recent private

valuations and changes in public and private comparable companies.

Arguably the most important piece of the pricing model is the most recent valuation

of a company, pinning the value of a unicorn to its price upon completion of the round.

The further away from that round the company gets (there is a roughly 18-month span

between unicorn rounds), public and private comparable companies increasingly impact

the company’s valuation.

When we look at the 2022 US index return of 1.0%, the large number of unicorn rounds

throughout the year has tied many index constituents to their most recent priced round,

most of which were at a valuation step-up. At the same time, we have not yet seen a

marked increase in private company down rounds during the economic slowdown.

In 2022, the median step-up for late-stage valuations has been 2.1x—higher than the

median step-up in 2021. However, this figure has decreased rather quickly throughout

the year. The median late-stage step-up in Q3 2022 was just 1.8x, indicating that private

valuation growth, which would underpin unicorn valuations, are growing at a much

slower rate. We expect this trend to continue in 2023 so long as the public market is less

receptive to high-growth, high-loss companies, as many unicorns are likely to be seen.

The US Unicorn Index has returned much higher than what was seen in the broader

public market or in our VC-Backed IPO Index. However, in November just nine deals were

completed for a post-money valuation of $1.0 billion or more. We believe this trend will

continue, potentially falling even further as the pressure created by stagnating value in

the private market constrains activity. We also believe that down rounds and further

slowing of valuation growth are likely to be trends in US venture in 2023. These factors

will increase the public market’s effect on the index’s pricing.

Kyle Stanford, CAIA

Senior Analyst, US Venture Lead

[email protected]


PitchBook Analyst Note: 2023 US Venture Capital Outlook

Outlook: Series C and D rounds will see the most down rounds, as these

companies are currently the most starved for capital.

Rationale: When we compare the estimated capital demanded by startups to

observed deal value in each quarter, we can track deal activity dislocations

in the market. Relative to historical trends, all stages have seen a massive

dislocation of deal activity starting in Q4 2020, but nowhere is this more

pronounced than the late stage. In Q4 2022, 3.5 times more capital was

demanded than the deal value observed. This could mean that the late stage

became the most overextended during the VC dealmaking frenzy of 2020 and

  1. As these companies grapple with the new reality of higher interest rates

    and stricter deal terms, they will not be able to raise at their previous paces,

    high cash burn rates, or valuation levels. Depending on how long it takes for the

    IPO window to open, we may see these companies cut operations significantly

    to increase runway at the expense of short-term growth. If or when these

    companies need additional capital from the private markets, many will have to

    raise it at a reduced valuation.

    Risks: Investors on the capitalization tables of these late-stage companies

    may not want to see their own investments written down and could come in

    to support these companies at the last round’s valuation to extend the runway

    of the companies. Additional capital provided to a company to keep it afloat

    would be better than a failed business. This occurrence could be especially

    prevalent if 2023 starts off with a heavily improved IPO market where investors

    can rationalize additional capital investment if they see a light at the end of the

    tunnel. Furthermore, investors that were anxious to see a piece of these highly

    valued companies could have skimped on due diligence and may have left

    themselves even more exposed than in normal markets. This could increase the

    incentive to send good money after bad, so to speak.

    In the chart below, we plot the estimated capital demand by stage over that stage’s

    observed deal value. This could be thought of as the amount of demand that was

    fulfilled by the market, or a “pace of dealmaking” metric. We can see below that

    companies in the late stage are the most capital-starved, with a demand of 3.5 times

    what was actually fulfilled in 2022. Their estimated capital demand has seen the

    least amount of support in terms of observed deal activity.

    We estimate the capital demanded by startups using a bottom-up analysis where

each deal generates estimates into the future based on historical deal size step-

ups and the distribution of time between rounds at the time of that fundraising. By

reviewing our reported deal value over time, we have determined that we tend to

add 10% of deal value to the most recent quarter due to a reporting and collection

lag. Therefore, we have added 10% of deal value to our reported deal value in the

current quarter only.

We see the biggest growth in capital demand relative to deal size at the late stage

Alex Warfel, CFA

Quantitative Research Analyst

[email protected]


PitchBook Analyst Note: 2023 US Venture Capital Outlook

because these companies are large enough to put capital to work in a meaningful

way. Smaller, early-stage companies may not have had the ability to expand

operations significantly in a market like that of 2020 and 2021, when capital was

cheap. However, this operational expansion came with greater ongoing expenses

that required greater funding in the future if the revenue from those operations

could not be converted into profit. When the funding market slowed down in 2022,

startups had to respond with layoffs, capital raises from other sources such as

venture debt, and so on.

Source: PitchBook | Geography: US

*As of December 1, 2022






Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2017 2018 2019 2020 2021 2022*

Early-stage VC Late-stage VC Venture growth




Estimated VC demanded as a multiple of observed deal value by quarter


PitchBook Analyst Note: 2023 US Venture Capital Outlook

Outlook: Seed-stage startup valuations and deal sizes will continue their ascent,

reaching new annual highs despite a slowdown in total deal value and count.

Rationale: Seed-stage startups are more insulated from public market volatility

than their early- and late-stage counterparts because they are at the most

nascent stages of the VC lifecycle. Having just raised their first round of

institutional capital, they are farther away from an IPO and can bide their time

until paths to liquidity reopen. In recent years, and more prominently following

the 2022 economic downturn, investors traditionally allocating capital to late-

stage startups have moved upstream, targeting the earlier stage to capture

larger returns and secure access to promising startups. Dramatic reductions

in the cost to start and scale businesses, the prolonged time between startup

foundings and seed rounds, and the expansion of participants at the seed stage

have contributed to the development of a more robust pre-seed market. This

has led to larger capital raises and valuations at the seed stage that are more in

line with historical metrics associated with Series A or later rounds. Moreover,

the economic downturn could cause investors to encourage seed startups to

raise additional capital, which would extend their runway past the 18-month

standard and translate to larger deal sizes at this stage.

Risks: The frozen IPO market has diverted investment dollars traditionally

committed to late-stage companies to younger startups. Should market

conditions improve and paths to liquidity return, seed-stage deal metrics may

stagnate or fall in response to larger check writers returning to their original

investment strategies. Seed-stage startups have a higher rate of failure and thus

higher investment risk; this could cause GPs to be wary of allowing deal sizes

and valuations to continue increasing because more of their portfolios could

be exposed to this risk. Additionally, GPs could exercise stricter due diligence

of startups and limit seed-stage deal-metric growth in order to mitigate the

recent years’ relaxed due diligence protocols, which have led to unsustainable

valuations hurting late-stage startups and forcing them to consider marking

down their portfolios.

Seed-stage startups are more mature than they have ever been. With a median of 2.4

years since founding, they are nearly double the age of seed-stage startups a decade

ago. Their maturity has contributed to the median seed-stage deal size, valuation, and

step-up YTD of $2.8 million, $10.5 million, and 1.9x, respectively, surpassing 2021’s

record-high figures. Amid the tepid public market conditions and the Federal Reserve’s

(the Fed’s) monetary tightening, seed deal metrics have increased QoQ. Q3 saw a

record-high median deal size of $3.3 million, reinforcing this stage’s insulated nature due

to the extended time to an IPO.

Further supporting the prospect of seed-stage growth in 2023 is the large number of

micro-funds (funds with less than $50 million in capital commitments) closed in recent

years. Venture funds typically make their investments over a period of three to five

years, so we have examined the micro-fund fundraising activity over the last decade,

breaking it into five-year periods. In the five-year period from 2018 to 2022, 1,770

micro-funds have been closed, amassing $24.4 billion in capital commitments. In the

five-year period starting in 2013, 1,280 micro-funds were closed with just $15.6 billion in

commitments. The increasing amounts of capital allocated to micro-funds as well as the

Max Navas

Analyst, Venture Capital

[email protected]


PitchBook Analyst Note: 2023 US Venture Capital Outlook

number of micro-funds competing for deals have bolstered seed-stage deal metrics in

recent years. The micro-funds closed from 2013 to 2017 largely contributed to the 2018

median seed-stage deal size and pre-money valuation of $1.8 million and $6.0 million,

respectively. The record highs set by seed-stage metrics in 2022 are due in part to the

expansion of micro-fund activity over the last five years, and as a result we can assume

that there will be a healthy number of micro-funds actively investing at the seed stage in

the coming year.

Traditional late-stage investors also play a significant role in the growth of seed deal

metrics. In recent years we have seen experienced managers such as Tiger Global,

Greylock Partners, and Andreessen Horowitz commit to investing or raising $1 billion,

$500 million, and $400 million, respectively, to back founders at the seed stage.1,2,3

The general need for larger-size funds to write larger checks in order to maintain their

expected return profiles will support the growth of seed-stage deal metrics in the

coming year.

In addition to late-stage venture capitalists launching seed-stage funds, we have also

seen larger venture capitalists increase their participation in seed-stage deals and

driving up the median deal size. Using PitchBook’s data, we examined the seed-stage

investment activity of Accel, Andreessen Horowitz, Greylock Partners, Intel Capital,

Khosla Ventures, Kleiner Perkins, Lightspeed Venture Partners, and Sequoia Capital

between 2020 and 2022 and found that the collective participated in 154 seed-stage

investments in 2020 and had already made 208 investments through mid-December of

  1. The subset of 2020 seed investments had a median deal size of $4.0 million, well

    ahead of the same year’s overall median seed-stage deal size of $2.0 million. Through

    mid-December of 2022, the median deal size had increased to $6.4 million, also well

    ahead of the overall median seed-stage deal size of $2.8 million. This activity lends itself

    to our bullish prospective of seed-stage deal-metric growth in the following year.

1: “Tiger Global Partners Commit $1 Billion for Early-Stage Tech Funds,” The Information, Berber Jin, March 7, 2022.

2: “Greylock Raises $500M for Seeds,” Greylock Perspectives, September 21, 2021.

3: “Introducing a16z’s Seed Fund,” Andreessen Horowitz, August 27, 2021.

Source: PitchBook | Geography: US

*As of September 30, 2022







2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Top and bottom quartile range Top decile Median Bottom decile Average

Seed deal value ($M) dispersion


PitchBook Analyst Note: 2023 US Venture Capital Outlook

Outlook: SPAC IPOs and mergers will continue to decline while liquidations will

continue to increase in 2023.

Rationale: Elevated market volatility has dramatically depressed valuations

in both public and private markets and has effectively halted public listings

through 2022. This impact has been noticeable not only for traditional IPOs

but also for companies looking to go public via a SPAC. Rising interest rates,

which impact consumer buying and borrowing power and thus earnings for

companies, have challenged the sky-high valuation multiples of 2020 and 2021.

Additionally, increasing regulatory scrutiny has negatively affected the primary

value propositions that SPACs offer to private companies, such as the ability to

reach public markets faster than a traditional IPO. These factors, among others,

have resulted in a sharp decline in SPAC issuance and combination activity and

in many cases have led to SPAC dissolution and capital returning to investors.

We expect these trends to be a driving theme in 2023 as turbulent market

conditions continue to dampen investor and private company interest in SPAC


Risks: Going public via a SPAC can still be an attractive option for some

private companies, and given the large number of SPACs that have yet to find

an acquisition target, it is possible that we will see an increased number of

mergers in 2023. As pointed out in our latest US VC Valuations Report, deal

value and count have decreased significantly for many late-stage companies

and unicorns, demonstrating a difficulty to raise capital in the private market.

Accessing public capital via existing SPAC vehicles could be a potential route to

funding given IPOs have been nearly nonexistent this past year, though there

will certainly be challenges along the way.

US SPAC activity has decreased significantly in 2022 amid volatile public markets, with

just 78 SPAC mergers totaling $38.2 billion YTD. Our team’s SPAC research note from

Q3 2022 observes that outside of the SPAC spike in Q4 2021, this is a continuation of the

trend we have seen since the end of Q1 2021. Indeed, SPAC formations are also down

with just 69 SPAC IPOs observed this year, which is the lowest annual total we have seen

since 2019. Given the propensity for SPAC favorability to coincide with positive market

performance, we expect these figures to continue to decline as we head into 2023.

Regulatory and legal headwinds have also contributed to the SPAC decline; most notably,

in Q3 2022, President Biden signed the Inflation Reduction Act of 2022 into law. The

act included a nondeductible 1% excise tax on the repurchase of corporate stock by a

publicly traded US corporation after December 31, 2022. This excise tax will apply to any

redemption by a US-domiciled SPAC, consequently incentivizing sponsors with no viable

target in sight to close shop before the year’s end. We have already observed this trend

as several high-profile SPACs have liquidated this year, including two from Chamath

Palihapitiya’s investment firm Social Capital. With more than 450 SPACs currently on

the market with a merger deadline in 2023, half of which with deadlines in Q1 2023, we

expect a significant increase in the number of SPAC liquidations by the end of Q1 2023 as

investors seek to recoup their capital and invest in asset classes better suited to navigate

the current market environment.

Furthermore, public market performance of companies that have gone public via SPACs

Vincent Harrison

Analyst, Venture Capital

[email protected]


PitchBook Analyst Note: 2023 US Venture Capital Outlook

will play a role in influencing investor appetite. Unfortunately, companies that have

managed to go public via the SPAC route have been especially battered by turbulent

market conditions; at the time of this writing, PitchBook’s DeSPAC Index shows a -64.5%

YTD return for public companies that have gone the SPAC route, compared with -17.3%

and -29.6% YTD returns for the S&P 500 and Nasdaq, respectively. While not a perfect

proxy for comparison, this sizable difference, among other factors, has curbed SPAC

formation and fundraising. We expect SPAC formation to continue its decline well into

2023, considering not only underperformance relative to major public index returns but

also increasing regulatory scrutiny and overall market volatility. Additionally, of the more

than 450 SPACs still looking to strike a deal, we expect more than 50% to liquidate and

return cash to investors in 2023.

Source: PitchBook | Geography: US

*As of November 23, 2022

Source: PitchBook | Geography: US

*As of November 25, 2022

$0.2 $0.8 $1.5 $2.9 $1.8 $7.6 $9.4 $15.9

$87.7 $166.0

10 7 $13.4 11 17 9 29 37 54
















2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Aggregate post value ($B) Deal count








Dec 2021 Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022*

DeSPAC Index S&P 500 Nasdaq

SPAC IPO activity

DeSPAC Index versus public market indexes return


PitchBook Analyst Note: 2023 US Venture Capital Outlook

Outlook: Venture growth deal value will fall below $50 billion in the US.

Rationale: Our venture growth dataset showcases the latest stage of VC and

could be thought of as a pre-IPO stage of investment. Venture growth deals

are generally the largest in the venture market, with the median deal coming

in at $20.0 million in 2022, double that of the late stage. Being this large, the

venture growth stage is heavily reliant on nontraditional capital, especially

from crossover investors, which have quickly retreated from the opportunistic

venture strategy they have deployed over the past couple of years. This leaves

the venture growth stage with a high number of companies and much lower

capital availability. Alongside this, we may simply see fewer companies looking

to raise at this stage of VC, instead focusing on sustainable growth and cost-

cutting in order to stay away from the difficult capital-raising market.

Risks: Similar to the risks associated with our Unicorn Index outlook, a public

market U-turn that begins to unlock the high value held by crossover investors

could pull these institutions back into the venture market. One of the reasons

crossover investment activity has been so high in recent years is because of

the relatively lower liquidity risk that VC investments at the growth stage have

presented. More than 87% of the record $781.0 billion in exit value generated in

2021 came from IPOs, which many growth-stage companies will need to realize

returns. There is also a large pocket of capital tied up in SPACs that could be

liquidated and recycled into the venture growth market.

Our venture growth stage highlights a small portion of venture deals that account

for a much larger portion of capital invested—5.5% of US deal count and 26.6% of

US deal value in 2021, to be exact. The $90.9 billion in venture growth investment

in the US VC market during 2021 was a record high by a wide margin, with the prior

high-water mark being just $44.8 billion. The capital crunch at the top of the venture

market has shown to be especially challenging for venture growth in 2022. Through

November 23, only $51.5 billion was invested in the venture growth stage.

The quick pullback from crossover investors is problematic for venture growth

because many deals within this space, especially the largest, rely on nontraditional

capital. 80.5% of the venture growth deal value in 2021 included participation from

nontraditional firms. Over the past five years, an average of 73.9% of venture growth

deal value derived from deals with nontraditional investor participation. The activity

of these institutions is vital.

In Q3 2022, crossover investors, the largest nontraditional investors, participated in

less than $12 billion in deal value, making 211 investments across the entire venture

landscape. Compared with the record quarters for each of these figures, both of

which occurred in 2021, that is $33.0 billion less and 304 fewer investments. The

volatile market has revealed nontraditional investor activity in VC to be simply

opportunistic. For many nontraditional investors, liquidity risk is high. Hedge funds

and mutual funds must remain liquid enough to service redemptions (mutual funds

have strict liquidity regulations), and the current economic climate has shown to

make the market even more illiquid than normal.

When we look at our estimate for capital demanded and compare it with our

Kyle Stanford, CAIA

Senior Analyst, US Venture Lead

[email protected]


PitchBook Analyst Note: 2023 US Venture Capital Outlook

estimate for capital supply for the stage, we see that a wide gap has formed in

  1. This void of funding for venture growth sets 2023 up to be very challenging

    for companies needing capital. Not only could they remain unable to access the

    public market through IPO, but without the necessary supply of capital, which will

    generally be needed to fund large deals, it is more likely that companies that find

    themselves at the venture growth stage will experience down rounds or even failure.

Source: PitchBook | Geography: US

*As of November 23, 2022

$7.8 $9.6

$17.6 $24.3 $22.0 $19.6 $29.5 $35.8 $44.8 $90.9 $51.5


491 542 511 480 526


674 720
















2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Deal value ($B) Deal count

Venture growth deal activity


PitchBook Analyst Note: 2023 US Venture Capital Outlook

Outlook: 2023 US VC mega-round activity will fall below 400 deals, hitting a three-

year low.

Rationale: Mega-rounds, defined as rounds with deal sizes of $100 million or

more, have become more prevalent in recent years with surplus capital and the

high number of investors chasing VC deals. The VC dealmaking environment

of the last few years encouraged a growth-at-all-costs mentality, encouraging

startups to return to market quicker at higher valuations and seek larger

amounts of capital. In the wake of the 2022 economic downturn, investors are

presently focused on the capital efficiency, path to profitability, and justifiable

valuations of startups. This shift in investor mentality, coupled with depressed

public markets affecting late-stage deal metrics and comparables analysis, will

thwart the mega-round activity in the coming year.

Risks: There are close to 1,300 privately held unicorns that have been unable

go public due to the frozen IPO market. Unicorns as well as startups that have

previously raised mega-rounds are likely to raise a mega-round in a subsequent

financing because their unprofitable operations may have grown to require

additional large capital injections to sustain their activity until an exit. 2021 was

a record year for mega-rounds, and the companies that raised those rounds will

likely need to return to market by 2023. Their return could prop up mega-round

activity. Additionally, 2022 saw a record amount of capital consolidate in larger-

size VC funds. This consolidation could lead to larger checks being written and

ultimately increase the total number of mega-rounds next year.

Mega-rounds have fallen on a QoQ basis throughout 2022, from 201 rounds in Q1, to

161 rounds in Q2, to 103 rounds in Q3. Considering the fourth quarter’s preliminary

data, we expect an additional 80 to 100 mega-rounds will be completed, bringing

this year’s annual total to around 550 deals. Stemming from the pressure of public

market uncertainty and frozen paths to liquidity, this year’s mega-round activity

will be a far cry from the 836 mega-rounds observed in 2021. Using our prior

conjecture, extrapolating 2022’s fourth-quarter activity, and anticipating a further

slowdown leads us to expect less than 100 mega-rounds will be observed per quarter,

culminating in a 2023 annual figure of less than 400.

Most mega-rounds occur in the late stage, so it is pertinent to examine the recent

dealmaking trends of startups in that stage. Late-stage deal metrics have fallen well

below 2021 figures, indicative of the unsustainable growth fostered in recent years.

Through Q3 2022, the median late-stage deal size was $11.5 million, a 20.6% drop

from the 2021 full-year figure of $14.5 million. As median deal sizes decline, we can

expect fewer mega-rounds to occur. The top-decile late-stage deal size was $75.0

million in Q3, a dramatic reduction from the record high of $143.7 million in Q4 2021.

Even the highest-performing late-stage deals are getting squeezed, making the

prospect of expansionary mega-round activity in the coming year improbable.

Tandem to the conversation of mega-round activity is the participation of

nontraditional investors, which overwhelmingly contribute to the growth of the

largest startups prior to their public listings or other exit events. From 2018 to 2021,

nontraditional investors have participated in 91% of mega-rounds and 93% of mega-

round deal value per year on average. Through Q3 2022, nontraditional investors

Max Navas

Analyst, Venture Capital

[email protected]


PitchBook Analyst Note: 2023 US Venture Capital Outlook

participated in mega-rounds with deal value totaling $88.5 billion, significantly

less than the $181.9 billion in mega-round deal value they participated in last year.

Nontraditional investors offer a necessary capital source to help startups exceed

deal sizes of $100 million. If nontraditional investors reduce their investment in VC

markets, mega-round activity will fall. We expect nontraditional investor participation

to shrink further in the coming year, limiting the number of startups that can

successfully raise mega-rounds.

Finally, it is important we address the risks of the plethora of startups that raised

mega-rounds in prior years potentially returning to market in 2023 to raise again.

Using PitchBook data, we examined the median time between rounds for startups

that have raised mega-rounds and saw a median between 1.0 and 1.2 years from 2019

to 2022. Based on this, we will focus on startups that raised mega-rounds last year,

as they will likely need to return to market soon if they have not already. Of the 832

startups that raised mega-rounds in 2021, 104 already returned to market this year,

meaning fewer of those startups will need to return in 2023. Due to the harsher VC

environment, we expect a fair number of the remaining startups to consider venture

debt to supplement their need for equity financings. Startups that opt to raise venture

debt could lessen the burden on raising equity; for example, if a startup were to

secure $50 million in equity and take on $50 million in venture debt, their financing

round would not show up as a mega-round despite having mega-round capital. If they

are unable to secure venture debt, they may resort to down rounds with deal sizes

less than $100 million, seek out acquirers to generate a liquidity event, or even go out

of business. Consequently, we are skeptical of the continued growth of mega-round

activity in the coming year and forecast fewer than 400 rounds closing.

Source: PitchBook | Geography: US

*As of September 30, 2022














Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2017 2018 2019 2020 2021 2022*

Deal value ($B) Deal count

VC mega-round deal activity by quarter


PitchBook Analyst Note: 2023 US Venture Capital Outlook

Outlook: US VC fundraising will fall between $120 billion and $130 billion in 2023.

Rationale: Despite US VC fundraising reaching a historic high in 2022, we expect

a slowdown to occur in 2023 as LPs grapple with liquidity concerns and consider

alternative investments in other asset classes positively affected by rising

interest rates. Declining public equity valuations can create a “denominator

effect” for many LPs, such as endowments, pension funds, and sovereign

wealth funds (SWFs), whose venture asset holdings become too large relative

to other asset classes outlined in their mandates. Our in-depth methodology

for this phenomenon can be found here. Declining public market valuations also

create an additional liquidity crunch for many LPs, as public equity markdowns

reduce the capital they can expect to receive as lockup periods for recent exits

expire. Rising interest rates, which are largely to blame for the downward trend

in equity valuations, have also created lower-risk opportunities for LP capital

in other asset classes, taking even more attention away from private market


Risks: Allocations to venture assets within an LP’s portfolio typically represent

a small overall percentage; therefore, large reductions in allocations may

not occur. Furthermore, as pointed out in our Q3 2022 Global Private Market

Fundraising Report, established fund managers with successful track records,

especially those who have done well despite poor market conditions, have had

great success in capitalizing on LP interest; globally, 68.4% of total VC raised

went to established managers in 2022, compared with 58.3% and 54.9% in 2021

and 2020, respectively. This upward trend illustrates the probability for larger,

established fund managers to increase their market share of active LPs with

flexible allocation mandates in 2023.

The exit environment of 2022 has been lethargic relative to previous years, with

just $63.4 billion in exit value generated YTD (not including Adobe’s acquisition

of Figma, which is expected to close in 2023), a significant decline from last year’s

record of $781.5 billion. As discussed in our most recent PitchBook-NVCA Venture

Monitor, this year’s total exit value, which we expect to be the lowest since 2016,

is a real cause of concern because the lack of liquidity driven by the slowdown in

exit activity could discourage LPs from recycling capital into the VC ecosystem.

Even in cases where VC valuations may remain stable or are marked up, resulting

in unrealized gains, cash returns to LPs ultimately dictate where future dollars are

allocated, including to existing capital commitments or into new funds.

Additionally, strong markdowns in public markets have reduced the amount of

capital returns that endowments, pensions, and SWFs can expect to receive if

and when they choose to sell shares from recent exits whose lockup periods have

expired. The lack of realized value relative to 2021’s record exit value generation

is likely to cause a capital crunch for many LPs, and this reduction in capital puts

a strain on existing liquidation mandates, so there is likely to be some hesitation

when considering recycling any available cash into the relatively illiquid VC

market. Given the ongoing uncertainty around public market conditions, we expect

the amount of capital commitments from these investors to continue to decline

in 2023 as these firms look to satisfy liquidity regulations and other mandates

outlined in their investor policy statements.

Vincent Harrison

Analyst, Venture Capital

[email protected]

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PitchBook Analyst Note: 2023 US Venture Capital Outlook

Interest rates have marched upward for most of 2022 as the Fed continues its

most aggressive set of rate increases since the 1980s. While these rate increases

have been the primary cause of equity valuation declines in public and private

markets, they have inversely created a safer way for investors to lock in positive

returns in other asset classes. As of December 6, 2022, the benchmark 10-year

Treasury yield finished at 3.5%, while the two-year Treasury yield—which is even

more sensitive to near-term Fed policy changes—finished at 4.4%. These figures

are some of the highest we have seen since the 2007-2008 Global Financial Crisis.

Considering the fact that higher yields translate to falling bond prices, and higher

risk-free rates increase the return needed from VC investments, it is likely we will

see investors allocating more capital to fixed-income instruments as a lower-risk

path to cash returns. Doing so would theoretically reduce the amount of capital

allocated to other alternative, illiquid asset classes, such as VC, thus further

reducing fundraising levels in 2023. However, it is important to note that many

investors predict a recession is on the way, which could eventually lead the Fed to

halt rate increases or lower them entirely, therefore reducing the attractiveness of

such a strategy.

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