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Record high for US VC fundraising despite ‘distressed’ dealmaking environment

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Concerns LP would seek to drop their exposure to venture capital amid the current public market turbulence appear completely unfounded, with US VC fundraising reaching a new annual high of $150.9bn with a quarter of 2022 still to go.

VC fundraising in the country has been on the rise every year since 2017 according to PitchBook data, but investors were prepping for a dip this year amid widespread volatility caused by Russia’s war in Ukraine and fiscal tightening impacting the world’s biggest markets.

Despite those fears, US VC fundraising has already outstripped the $147.2bn recorded across the full-year 2021 according to PitchBook’s and NVCA’s latest Venture Monitor report.

It said, “Much of the fundraising narrative has been centered on the last year’s momentum and the funds already in discussion prior to the economic downturn.

“Entering the second half of the year, we are starting to see that momentum atrophy, yet fundraising remains relatively strong.

“$29.4 billion was added to the fundraising total since lastquarter’s report. LPs may feel compelled to maintain their allocations with GPs to secure access to future funds and avoid costly due diligence efforts to identify new managers later.”

The report showed a big divide in the success of established and emerging managers, with more than 86% of Q3s total invested capital committed to 66 funds led by established firms.

Big funds closed in the last quarter include $1bn-plus vehicles from Bessemer Venture Partners, Battery Ventures, Lightspeed Venture Partners and Oak HC/FT, successfully closed funds.

The report said, “Going forward we expect higher concentrations of capital committed to established managers and a greater prevalence of larger multistage funds increasing the throughput of deals through the venture lifecycle.”

US VC firms currently dry powder of more than $290bn.

Things are not looking so rosy for venture capital dealmaking in the US, however, with investment activity across all stages showing “more signs of distress” amid the third consecutive quarterly decline in completed deals.

The estimated deal count in Q3 of 4,074 is off by almost 20% from the quarterly record high recorded in Q1 (5,049), and is the lowest count seen in any quarter since Q4 2020 (3,364).

Q3 saw just $43bin invested in VC deals across all stages, a nine-quarter low, which PitchBook said cemented a tone of investor hesitancy and increased focus on business fundamentals amid the global economic downturn, even if the numbers remain high on a historical basis.

It said, “Notably, deal count participation has declined for all nontraditional investor types except for corporate investors, which were involved in more than a quarter of all completed deals in 2022.

“In past reports we have noted that a nontraditional investor slowdown, especially by asset managers and PE funds, would be noticeable in the data due to the reliance on these institutions to complete mega-deals – 87% of mega-deals received nontraditional investor participation in 2021.

“Just 95 mega-deals were closed in Q3, the lowest total since Q3 2020.”

It added, “With just $14billion in exit value generated across an estimated 302 exits in Q3, there were few bright spots for the VC exit market.

“These figures are in line with exit activity expectations around 2014 and well off the highs seen in 2021 – $266.8bn in exit value was generated in Q2 that year.”

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