Tuesday, January 31, 2023

Venture capital deals plunge in 2022


  • Venture capital exit value fell “dramatically” in 2022, according to KPMG data
  • Economic and geopolitical pressures, turbulent markets to blame
  • But high levels of dry powder await deployment in calmer times

Global venture capital investment dropped every quarter last year, as valuations plunged in the market and economic turmoil.

The VC space faced one of its worst years after booming for a decade, driven largely by tech start-ups in the low-rate environment.

That halted last year as VC investment fell to $75.6bn on 7,641 deals in Q4, the worst quarter in more than two years, according to KPMG data.

“The combination of economic and geopolitical pressures, alongside turbulent capital markets and low IPO activity, have taken their toll on venture capital investment,” said Conor Moore, head of KPMG Private Enterprise in the Americas.

The energy sector defied the wider gloom in VC, with relatively high investment in the new energy and electric vehicle ecosystems.

Among alternative energy companies, US-based nuclear reactor firm TerraPower led with a $830m deal, while investment in the electric vehicle space dwarfed most other sectors, said KPMG. Chinese electric vehicle manufacturer GAC Aion had a $2.56bn fundraising round.

But for VC in general the picture was bleak. Exit value fell “dramatically” from $1.43trn on 4,174 exits in 2021 to only $308.8bn on 2,997 deals in 2022.

Dry powder remained at all time highs and could shore up the sector until stability returns. VC firms raised over $250bn, the third highest total in a decade.

“Globally, we continue to see downward pressure on valuations in early 2023, leading many companies to postpone fundraising efforts in hopes of better times ahead,” said Jonathan Lavender, global head of KPMG Private Enterprise.

“However, these companies can only hold off so long and we anticipate an increase in down-rounds during the first half of 2023 as companies begin to exhaust cash reserves.”


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