Venture capital slows in the second quarter
That’s one of the key takeaways from a quarterly report released Thursday by industry data service Pitchbook and trade association the National Venture Capital Association.
The report tracked 76 Michigan venture deals in the first half of the year, totaling $657 million in investments. That’s compared to 67 deals in the first half of 2021 for $422 million.
In the second quarter of 2022, the two organizations tracked 29 deals totaling $291.3 million. For the first quarter, there were 41 venture capital deals totaling approximately $257.6 million.
From a national perspective, the report tracked 9,421 transactions for the first half of the year, totaling approximately $144 billion. Last year, a record for the VC industry, a total of 17,637 transactions worth approximately $341.5 billion were recorded.
The start of this year “brought an expected continuation of market tightening in parts of the US venture capital ecosystem,” according to Bobby Franklin, NVCA’s president and CEO. “However, the industry’s record dry powder continues to fuel critical innovation that meets the country’s important needs. The venture capital industry’s long-term vision for investing, even in times of fiscal uncertainty, is further proof that this is a reliable economic engine with an eye on funding the next generation of America’s great corporations.”
Venture capital activity in Metro Detroit has always been abundant in recent weeks:
As financial markets have become increasingly volatile in the face of soaring inflation and Russia’s war in Ukraine, many in the venture capital and startup sectors have spoken of the expected chill factor in space.
Dollar values of deals are down, according to the report. But the total number of transactions, especially for start-ups, remained quite high.
“Seed-stage investments are generally furthest from the public market and have been relatively more shielded than the rest of the industry from economic volatility,” the report said. “The estimated total number of seed transactions in the second quarter is close to the highest figure in the dataset.”
The report adds that later-stage deal flow has yet to show a “substantial decrease.” However, “average deal size and valuation have declined significantly from recent highs.”
Exits are likely to be the biggest challenge for investors and founders at a later stage, as the IPO window is all but closed for the foreseeable future.
“With the shutdown of public listings, private companies may look to strategic acquirers as a more viable liquidity option, although exit value expectations will be readjusted to align with the global repricing that is occurring in the world. ‘ecosystem,’ the Pitchbook and NVCA report state.