BTV's Analysis of the CB Insights: State of Venture Q1-22 Report.

By Sam Morris, BTV Investment Analyst.?

In January, BTV looked at the State of Venture 2021 Report by CB Insights, which highlighted the record-breaking?$620.8 billion in funding that start-ups received from VCs in 2021.?

CB Insights has recently published its Q1-22 report on the global VC market (State of Venture Q1-22 Report - CB Insights Research).?It shows that global venture funding reached?$143.9 billion?raised across?8,835?deals in Q1-22,?down 19%?from the previous quarter’s funding.?Despite the slowdown, Q1-22 marked the fourth-largest quarter for funding on record.

The new report details some interesting insights.?

It shows how Venture Capital (VC) deal activity and funding levels have decreased quarter-on-quarter (Q1-22 versus Q4-21), although both of these metrics are still high compared with pre-COVID-19 levels.?

This is primarily driven by mid- and late-stage valuations decreasing from record highs in 2021, which has resulted in the average global deal size falling from USD 25M in 2021 to USD 21M in Q1-22.??However, the valuation of early-stage deals has continued to increase.?

Of course, some major global events, including the war in Ukraine, have happened since the 2021 report, which have undoubtedly affected the market.?

It’s interesting to see the impact that rising inflation and interest rates, the cost of COVID-19 (from the perspective of governments and the potential fiscal implications), and the Ukraine crisis have had on public equities, which has impacted VC exit valuations and, ultimately, the VC sector as a whole.??

With the U.S. Federal Reserve and the Bank of England recently announcing base rate increases -?and given the UK economy has contracted for two consecutive months in March and April this year - we could expect to see further decreases in public equity valuations. This would ultimately filter through and impact all stages of VC financing, if the recent trends of rising inflation and interest rates, and economic contraction, continue.??

On the other hand, given VCs have recently been raising record amounts of capital from investors, perhaps valuations will essentially be insulated from any potential downturn in public equities – at least for a period of time – as VC funds continue to deploy this record amount of capital.

It will be fascinating to see how the global economy evolves throughout the rest of the year and the impact that this will have on the VC sector throughout 2022.