Global Venture Capital Deals Experience Decline in Q2, Lowest Since 2018 – Pitchbook Update

In the second quarter of the year, global venture capital deal counts have declined, marking a departure from several quarters of plateauing activity. Pitchbook reports that both Europe and Asia witnessed a slowdown in investments during this period, contributing to the overall decrease in global venture capital deals. Furthermore, global exits have reached their lowest point since Q1 2018. Let’s delve deeper into the key insights from Pitchbook’s Q2 report and explore the factors affecting the venture capital landscape.

Article: Global venture capital deal counts have experienced a decline in the second quarter (Q2), breaking the streak of consistent activity observed in previous quarters, according to a report by Pitchbook. The decline can be attributed to a slowdown in investments in both Europe and Asia. The report highlights that the value of completed deals has remained stagnant for several quarters, significantly below the highs witnessed a couple of years ago.

One significant factor contributing to this trend is the lack of active participation from large investors, including crossover investors, private equity firms, and sovereign wealth funds, in the venture capital space. Without their involvement, the outsized deals that previously drove deal values to record levels are unable to materialize, as indicated by Pitchbook’s initial Q2 report.

The exit activity in the global venture capital market has remained subdued, with only $51 billion in global exit value, the second-lowest since Q1 2018. The public market opportunities are limited, and increased antitrust scrutiny has sidelined large acquisitions. Additionally, global inflation and geopolitical tensions in key venture markets have exerted pressure on exits.

Fundraising challenges in Europe and North America are also impacting the global fundraising totals for the year. While Asia’s fundraising remains on par with 2022, it is still lower than the levels witnessed in 2021. A weak exit market globally creates an unfavorable environment for general partners raising funds, as limited partners receive low distributions, limiting their ability to reinvest in venture strategies.

Key Takeaways from the U.S. Market: In the United States, startup valuations have been declining. Despite a swift decline observed at the end of 2021 and early 2022, U.S. deal activity has remained flat over the past few quarters, consistently staying above pre-2021 levels.

Pitchbook estimates indicate that both early-stage and venture growth deals have seen an increase in deal counts during Q2. However, the deal value for both stages continues to fall significantly below expectations. This suggests that many of these deals aim to extend cash runways with minimal dilution, rather than raising a full round in a market downturn.

The exit value in the U.S. market is projected to finish the year slightly above $20 billion, marking the lowest value in the past decade, nearly $50 billion lower than the previous year. VC-backed companies have struggled to pursue initial public offerings (IPOs) due to market conditions, despite positive returns in the public markets. Startups still need time to restructure their business models, showcasing a clear path to profitability and attracting premium valuations from public market investors.

While fundraising received a boost in Q2 with the closure of several large funds, the year is expected to have the lowest fundraising total since 2017, reaching $33 billion. The number of funds closed has remained relatively high due to the presence of a significant number of active funds in the market. However, many general partners have postponed new fundraises until 2024, anticipating a rebound in returns during that period.

Decline in European VC Deals: Europe has witnessed a continued decline in VC deal values throughout Q2 2023, reflecting a sluggish dealmaking environment.

summary

Global venture capital deal counts declined in Q2, with Europe and Asia experiencing slower investments, according to Pitchbook. This resulted in the lowest global exit value since Q1 2018. The absence of large investors such as private equity firms and sovereign wealth funds has hindered the completion of outsized deals. Factors like low public market opportunities and increased antitrust scrutiny have also impacted exit activity. Fundraising in Europe and North America has slowed, pressuring global fundraising totals. In the US, startup valuations have fallen, but deal activity has remained elevated. While early-stage and venture growth deals have increased in Q2, deal values are lower than expected. The US exit market is projected to be the lowest in the past decade. European VC deal value continued to decline in Q2 due to a sluggish dealmaking environment, longer due diligence processes, and macroeconomic issues. Exit activity stalled, with startups and investors awaiting improved market conditions. Fundraising in Europe has also slowed, with limited partners favoring lower-risk funds managed by established fund managers. Overall, the Morningstar-Pitchbook US Unicorn Index is expected to show a negative return, and the seed-stage market is projected to grow despite the decline in deal value and count.

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