This Year Has Been a Good One For the US Venture Capital Market

Despite a partial return from the coronavirus pandemic era surge in start-up financing that has followed this year’s drop in tech stocks the volume of venture capital deals in the United States has remained at historically high levels in recent months.

PitchBook and the National Venture Capital Association released their newest quarterly data on the VC industry on Thursday, showing a surprising level of resiliency despite the ongoing influx of capital into the sector. The first nine months of this year saw record-breaking inflows of $151bn into venture funds surpassing the previous full-year high of $147bn established in 2021.

Due to the precipitous decline in the price of high-growth technology equities, venture capitalists have been preparing for a slump throughout much of 2016. The reversal has put a dent in the VC bubble, which had ballooned to $343bn in US venture capital agreements in 2018—nearly four times the amount invested in the same projects just four years earlier.

According to PitchBook’s numbers, the $43 billion invested in the most recent quarter was 52 percent lower than the same period the previous year. That, however, was larger than in any prior quarter before the epidemic, with the exception of the last quarter of 2018.

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Late-stage private company valuations have dropped the greatest as a result of the stock market crash. In the most recent quarter, the amount invested in late-stage startups dropped to $25bn, 62% lower than the same period last year, as large investors outside the traditional VC industry, such as SoftBank and Tiger Global, pulled back.

On the other hand, investments in early-stage businesses and sectors including healthcare, clean technology, energy, and transportation have fared well. According to PitchBook, the number of investments made in these four sectors through September of this year exceeded the total for all of 2020.

US Venture Capital Market
US Venture Capital Market

Zack Bogue a partner at DCVC which is building a specialty climate change fund cites a number of tailwinds including high oil prices and government goals to decrease carbon emissions for the sustained increase in energy and clean tech investing. He said that technological upstarts could enter the high-capital energy sector thanks to advances in artificial intelligence and declining computing costs.

Because of the sluggish IPO market, things have gotten more complicated. The valuation of Instacart, an online grocery service that had anticipated going public this year, was reduced from $39 billion to $24 billion. Many startups that raised significant capital during the market’s all-time highs have decided against seeking funding this year in order to avoid receiving reduced values as a result of the downturn.

According to Senkut, this means that only enterprises with significant evidence of company growth or those desperately in need of financing have been able to successfully raise funds. For example, this week the business spending management software firm TripActions raised $300 million at a pre-money valuation of $8.9 billion, up from $7.25 billion a year ago.

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