Venture capital in the United States this year is on pace to see the lowest fundraising since 2017, according to new data from the Q1 2023 PitchBook-NVCA Venture Monitor.
The VC industry has slowed dramatically from the highs of 2021, as broader market pressures and increased interest rates have led VC firms to focus on fundamentals rather than on pushing their portfolio companies forward with a growth-at-all-cost mindset.
The report says that the momentum gained in 2021 is essentially lost—$11.7 billion was closed across 99 funds in the three months ending March 31. That figure, for all of 2022, was more than $160 billion.
Late-stage U.S. deal values collapsed for the seventh straight quarter to $11.6 billion, the report said. Investors are currently dealing with weakening liquidity caused by a poor exit environment, leading them to stay away from larger deals.
Less than $6 billion in exit value was closed in the first quarter this year, which is a stark contrast from figures generated in 2021, according to the report. It’s less than 1% of the total exit value generated two years ago, as the initial public offering market has stalled dramatically. It’s been difficult for companies to realize returns for investors, resulting in inflated valuations.
“Even though our exit count estimate increased slightly QoQ because of relatively strong M&A, acquisitions cannot provide the amount of capital needed due to these high valuations,” the report said.
Funding commitments have continued to center on larger-sized vehicles, but only two funds closed on $1 billion or more in the quarter. “The sluggish pace of fundraising for emerging and first-time fund managers could be a precursor to formidable fundraising experiences through the end of the year,” the analysts and researchers wrote.
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