Venture Capital in 2023: What To Expect?
After record levels of deal value in 2021, the venture capital industry experienced a slowdown during 2022, in which fundraising activity fell 27% compared to the previous year. Despite this, experts are optimistic about the future of venture capital funds and argue for a potential rebound in 2023. In this article we explain our 2023 outlook and why it might be a good year to invest in venture capital funds.
Setting The Stage For Venture Capital In 2023
According to the NVCA-Pitchbook Monitor Report, in 2021, the US venture capital funds reached a record value of deals that exceeded $340 billion, which doubled the deal value of 2020. The deal count also surpassed the figures for 2020, going from 13,422 deals to 18,521 by the end of 2021.
However, this seemed short-lived as 2022 marked a significant slowdown of deal activity. Fundraising activity in Q2 dropped 26% from Q1 and 27% year over year from Q2 in 2021. Data shows that the late stage was impacted the most, falling 31% quarter over quarter and 38% year over year.
Despite the slowdown in activity, the venture capitalists are hopeful for a rebound in 2023. Moonfare's White Paper points out that venture capital funds should maintain momentum, given that digital transformation continues evolving quickly. Likewise, the NVCA brings caution to the comparisons, reminding us that 2021 was an exceptional year in terms of industry activity and that, compared to any other year, venture capital remained strong in 2022.
Critical Reasons Behind Venture Capital's Rebound
Venture Capital Funds Still Have A Lot Of Dry Powder
Venture capital firms are estimated to be sitting on $290 billion, with $162 billion allocated explicitly for new investments. This is partly due to the record venture capital funding amounts in 2021 and the slowdown in deploying funds in 2022. Performance and pay structures often incentivize fund managers to deploy capital, meaning there should be a lot more activity for startup investing in the years to come.
Startup Valuations Have "Corrected"
2021 was an abnormal year for startups and venture capital investors. The environment led to startup valuations increasing at a rate many investors believed was "overvalued." The 2022 environment caused many companies to reevaluate their deal terms, resulting in more favorable terms for venture capitalists.
Innovation Is Still Pacing Rapidly
Whether it be the Ethereum merge or the sudden emergence of AI design tools, technological advancements are still evolving at record paces. This environment gives startups the best opportunities to build companies where emerging technology is foundational or tangential to achieving hyper-growth accomplishments.
While these reasons can't guarantee investment success, they make a compelling case to invest in venture capital and startups. Such investments can be made easy through our venture investing platform. Learn how aVenture is working to revolutionize the venture capital industry, and join our waitlist.
Jan 30, 2023
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