8 global VC trends in 2022

Tying into PitchBook’s continued partnership with Web Summit, PitchBook senior VC analyst Kyle Stanford provided a general overview of global VC and market trends from Q4 of 2021 and from Q1 and Q2 of 2022.

According to Kyle:

1 – A change in exit activity

Exit activity has surged in recent years, making 2022’s slow down all the more evident. Up until mid-May, PitchBook’s VC-backed IPO index “severely” underperformed the S&P 500 total return index by a significant margin, with the tech sell-off hitting formerly VC-backed companies with outsized strength.

2 – No shortage of dry powder

Recent fundraising records have driven the enormous dry powder level. The global VC industry has more than US$500
billion in dry powder, which will provide short-term insulation from market turbulence.

3 – More deals, lower value

4,567 deals were completed in 2021, to a value of US$713 billion. 15,652 deals have been completed in 2022 (as of June), to a value of US$230 billion.

“The steep decline that we’ve seen in Q2 is really what we expected. There’s gonna be a lot of US investors not able to invest in startups as they have in the past few years.” – Kyle Stanford, senior VC analyst, PitchBook

4 – Unicorns under pressure

There are 1,208 active, privately-held unicorns globally. Kyle provided some context, saying: “There’s an extremely high amount of pressure building at the very top-end of the market. A lot of these companies have raised capital on very high revenue multiples. Their valuations are not able to be sustained over the coming year. Their growth has also largely not been able to keep up with the valuation that they’ve seen.

“We do expect with these unicorns there will be some that are able to exit this year, but the majority of them are unable to exit in the current market. The pressure at the late stage at the very top of the market is going to continue to build, so it’s likely going to lead to a decrease in deal value.”

5 – Traditional investors on the up

In 2021, there was US$13 of funding available for every US$1 that a late-stage startup was seeking. Kyle explained: “A lot of that is down to non-traditional investors ploughing money into the market over the past few years. Hedge funds, mutual funds, private equity funds… Much larger investors than traditional VC have been investing a ton of capital in late-stage; really boosting up all of those values that you’ve seen, from deal size to valuation.

The steep decline that we’ve seen in Q2 is really what we expected. There’s gonna be a lot of US investors not able to invest in startups as they have in the past few years.”

In fact, 77.5 percent of global deal value came from the participation of non-traditional investors.

6 – A rise in exit values

There was US$1.4 trillion in global exit value generated in 2021. US$748 billion of this was generated by US-based, VC-backed companies.

“A lot of that has to do with IPOs with Coinbase, Uber, Slack… Some of the largest IPOs we’ve seen in the past few years are really inflating this exit value,” said Kyle.

7 – A dip in public markets

There was US$1.4 trillion total remaining value held within VC funds globally at the end of 2021.

“So much of the AUM [assets under management] that is contained in these VC funds is that residual value that has not been exited yet,” said Kyle.

“This again is a major problem when there’s this growing AUM, this fast-growing residual value, because that cash
needs to be exited at some point to return to LPs to get recycled back into the market … We expect the public markets to be down for at least two more quarters.”

8 – A decline in capital returns

There has been US$363.8 billion in distribution totals from global VC funds since 2019. “VC funds have not been getting back as much capital as they’ve been contributing the past few years, despite the growing distributions that VCs have seen,” said Kyle

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Main image of Kyle Stanford, senior VC analyst, PitchBook, sharing insights on VC trends at Collision 2022: Harry Murphy/Web Summit (CC BY 2.0)