Back in December, when we crafted these outlooks, the public markets had only started to show negative momentum and the rapid growth of inflation and interest rate increases were only distant probabilities.
It’s clear that the financial markets are on the cusp of a major shift, however, as these unprecedented changes in the macroeconomic climate have had a mixed effect on the VC environment.
For instance, capital investment totals and fundraising figures are pacing at historically high levels, displaying at least a maintenance of the momentum from the record-breaking 2021.
This was a bit surprising given the anecdotal sentiment heard from VC participants, especially as high-growth assets were hit hardest by the correction in valuations.
We expect most of this stability is due to the robust levels of dry powder and general capital availability for VC-backed businesses that GPs have needed to deploy.
This strength in dealmaking has allowed two of our outlooks to be on a positive trend toward coming to fruition by the end of the year.
These include the top 10 US VC ecosystems completing at least 400 deals each, continuing the trend of geographic expansion, and 1,500 unique corporates making an investment during the year.
It’s important that we highlight these positives to avoid the extreme panic narrative that is all too easy to come by, but there are some cracks starting to form from the pressure of a cycle shift.
This negative trend is clearest when looking at the public listing market and the nearly six-month drought of new VC-backed IPOs.
If this continues for the rest of the year, the lack of liquidity coming back into the VC ecosystem from the large exits via public markets could have a long-term detrimental effect on fund returns—and therefore the amount of new capital flowing to the strategy.
This avoidance of new public listings by startups and their investors also directly refuted our outlooks about YoY IPO volume growth but also likely contributed to a correct prediction about SPACs’ fall from favor.
Start-of-the-year outlooks are always an imperfect task, especially during a time when the business cycle is in flux. Further, we’re only halfway through this tumultuous year and the second half is still wrought with uncertainty about Fed action, economic growth—or lack thereof—and myriad other factors.
We will continue to monitor these trends as we go through the rest of the year and as we determine how this flows through into the venture market.
Be sure to download the full mid-year analysis of our 2022 US VC Outlook.
