North American startup investment in the third quarter was more than half of last year’s levels due to a further sharp decline in late-stage funding.
That was a broad finding from the latest compilation of Crunchbase data on venture funding in the U.S. and Canada. It has remained so, indicating that the pullback that started earlier this year has intensified in recent months.
Overall, investors spent $39.7 billion in seed-to-growth deals in Q3, down 53% year-over-year and down 37% from Q2. The year-over-year decline was most pronounced in the late stages, down 63% in the previous quarter.
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For perspective, here’s the total North American fundraising for the last 11 quarters, color-coded by stage.
The latest numbers don’t look all that surprising when looking over a two-year timeline, as well as comparing them to 2021’s record-breaking tally. By historical standards, total funding is still fairly high. For example, early and seed-stage deals are actually above 2020 levels.
Below, we take a closer look at the latest quarterly numbers, focusing on stage-by-stage investments and key exits.
Late-Stage and Technology Growth Shrinks Sharply
Start with the late stage, where the sharpest deceleration is seen.
Overall, late-stage venture and technology growth funding totaled $19.4 billion in the third quarter. That’s down nearly two-thirds from the $53 billion invested in the year-ago quarter. Funding is also down about 45% from the second quarter.
The number of deals also decreased, albeit to a lesser degree. For perspective, take a look at the number of rounds and total investment for the past five quarters below.
The public market may be driving much of the late-stage private market decline. Investors are rethinking valuations as tech and biotech stocks plunge on major exchanges. Furthermore, the pre-IPO round has not been completed either, as IPOs have been few and far between.
On the other hand, many late-stage startups have ample cash to raise in 2021 and may be postponing new funding until there are signs of market recovery.
Even with the late stage shrinking, we saw some big rounds.Largest late-stage funding sources in Q3 included digital manufacturing startups vulcan form ($355 million in Series C), Small Business Policy Provider pie insurance ($315 million Series D), and City Greenhouse Company Gotham Greens ($310 million Series E).
Early stages are down, but not by much
Investors also put the brakes on early-stage trading. In the third quarter, they put his $17 billion into 879 known funding rounds. In monetary terms, it’s down 40% year-over-year and down 28% over the second quarter.
For context, here are the early-stage investments and round numbers for the last five quarters.
Early stages show less dramatic declines than later stages. Apparently, as these startups mature, they become more confident that market conditions will improve.
The biggest early-stage deal this quarter was $1 billion Series A for terawatt infrastructure, provides charging stations for electric fleets.next $350 Series A for Aleteia Therapeuticsa spin-off working on asthma treatment, followed by $300 million Series B for misten labdevelopers of the Web3 infrastructure.
Seeding slows down some
The slowdown in funding was less pronounced during the seed stage.
Overall, investors put $3.3 billion into seed-stage deals in the third quarter. This was down 18% from the second quarter and down 6% from the same period last year.
A relatively strong seed period suggests that investors are more confident in the long-term prospects than in the short-term. Also, newly minted startups have a higher chance of failure, but a lower valuation, which helps reduce risk.
Some of the third quarter rounds were unusually large by seeding criteria.for example ve friends, an NFT project on intellectual property, received $50 million in funding in July.When ripple careA seniors-focused mental health startup raised a $32 million seed round in September.
Still, they were outliers. The median disclosed seed or pre-seed round in the third quarter was approximately $2 million, with only 25 deals valued at $15 million or more.
As the third quarter came to a close, the IPO window was largely closed, and without a significant amount of M&A action, it looked like a fairly subdued exit environment.
However, in mid-September Adobe shatter the story, Consent to purchase digital design collaboration unicorn figma At $20 billion in stock and cash, it has been called the largest venture-backed privately held acquisition to date.
Yes, it may still look like lean time to most exit-hungry investors. But it’s clear that it’s an environment where big deals are possible. Below, we look at what happened in the third quarter for both public offerings and M&A exits.
Let’s start with M&A. M&A was, as mentioned earlier, largely dominated by the giant Figma acquisition. The deal was several times larger than all other disclosed acquisitions combined.
Still, while no other company spent as much as Adobe, there were some interesting large M&A deals throughout the quarter. Here are the top seven.
The third quarter was not a great time for tech and biotech public offerings. This is given that both sectors are hurting major exchanges. Unprofitable companies (a category that includes recently publicized venture-backed deals) have been particularly unfashionable.
But even in this suboptimal environment, several funded companies entered the market through previously announced SPAC deals or traditional IPOs. Below we list nine open market debuts.
the biggest debut RubiconThe Lexington, Kentucky-based online waste and recycling marketplace debuted in August after completing a SPAC merger at a valuation of $1.7 billion. Since its debut, the stock price has plummeted.
next D-Waveis a quantum computing company that completed a SPAC merger in August, valued at about $1.6 billion. The stock is well below peak, but above average for SPAC trading.
Descent from a very high peak
So what should we take from these mostly downtrend numbers as we bid farewell to the third quarter?
One important thing to keep in mind is that 2021 is shrinking from a very high height as it has significantly surpassed previous funding records. So while a 50%+ year-over-year decline in funding may be alarming headlines, we’re still close to where we were a few years ago. And at the time, it was considered a pretty good time for startup funding.
Of course, late stage doesn’t fare as well as early stage or seed. However, given that VCs still have a large amount of debt in their coffers, VCs may start spending more once consensus on valuations returns and exit conditions improve. high.
But for now, that number is certainly declining. No upcycle lasts forever.
The data contained in this report comes directly from Crunchbase and is based on reported data. Reported data is as of October 3, 2022.
Note that data lags are most noticeable in the early stages of venture activity, with a significant increase in seed funding amounts at the end of the quarter/year.
Please note that all funding amounts are in US dollars unless otherwise stated. Crunchbase converts foreign currencies into US dollars at prevailing spot rates from the date funding rounds, acquisitions, IPOs, and other financial events are reported. Foreign currency transactions are converted at historical spot prices, even if those events were added to Crunchbase long after they were announced.
Seed and Angel consists of seed, pre-seed and angel rounds. Crunchbase also includes an unknown series of venture rounds, equity crowdfunding, and convertible bonds under $3 million (USD or converted USD equivalent).
The Early Stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes an unknown series of venture rounds, corporate ventures, and other rounds above $3 million and rounds under $15 million.
Late stage consists of Series C, Series D, Series E, and subsequent letter venture rounds following the “Series”. [Letter]” naming convention. It also includes an unknown series of venture rounds, corporate ventures, and other rounds above $15 million.
Technology Growth is a private equity round funded by companies previously raised in “venture” rounds. (So basically every round of the previously defined stages.)
Illustrated by Dom Guzman
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