Venture Capital Results for Q2, 2022

2021 was a phenomenal year for venture capital and the firms funded by venture capital.  The number of funding rounds and amount of capital invested soared beyond that of any prior year.  Exits in the form of company sales and initial public offerings also were extremely strong.  Committments of new capital to funds by investors were very high.  2022 is not starting out so great and isn’t likely to end so great, although the level of activity is still historically fairly good.  The National Venture Capital Association issues its regular report on the second quarter of 2022.   (NVCA Report)

The venture capital cycle, wherever you want to start it, basically involves a venture fund raising funds from investors.  The fund then invests in new or emerging companies, which it helps grow fast, then either sell the company or do a public offering and get the fund’s capital back with a big return, which is given to the shareholders, who then re-invest in another venture fund, and so on.  This dynamic system has created a lot of well-paying jobs and wealth for decades.

In the first half of 2022, about 9400 financing rounds occurred, with a total value of $144 billion.  The average size of the funding round was down, as funds became more cautious about valuation and company prospects.  Funds raised about $120 billion, adding to the record size of unspent money, which continues to be a positive and negative.  It means there is lots of capital available to support the growth of emerging companies, but it also puts pressure on funds to invest, often unwisely.  Exits by IPO disappeared, with only 8 in the second quarter, a 13 year low.  Recent IPOs have been trashed in the last few months, and there is little appetite among institutional investors to take that kind of risk right now.  While the slowing is consistent with what is happening in the overall economy, the level of capital reserves should provide comfort that this engine for the economy will continue to function.