Commenting on Pitchbook's preliminary Q4 2022 figures, Mads Jensen notes that US VC deal counts fell 25% from Q1 yet were still historically high, and suggests internal rounds explain why the market felt far quieter.
- Pitchbook's preliminary data showed Q4 2022 US deal counts down 25% from Q1 2022.
- Activity was nonetheless higher than in any other quarter of the previous ten years.
- The preliminary figures include estimates for completed but not yet announced deals.
- The author thinks the market felt worse than 25% mainly because most new rounds were internal, raised from existing investors.
- Because venture capital is wired for constant growth, even a static market feels tough and a declining one doubly so.
Pitchbook’s preliminary Q4 numbers for US Venture Capital activity are now out. They show last quarter’s investment activity (measured in number of deals) down by 25% from Q1. But they also show activity higher than any other quarter in the past ten years.
All Q4 investment rounds have not yet been announced. So the preliminary figures adjust for this by estimating completed but as-of-yet unannounced deals.
A few observations:
- The analysis shows that numbers have declined. But anecdotally, most people I speak with feel that the decline has been much more severe than 25%.
- This is possibly because Pitchbook overestimates Q4 activity.
- More likely, it is because most of the new rounds are “internal” – i.e. companies raising from existing investors.
- If most folks are raising internally, the market will feel much quieter.
Why does this market feel difficult for founders (and some investors?)
Venture Capital is the definitive “growth” industry. It’s wired to grow all the time. Even a static market will feel tough, and a declining one doubly so.
Frequently Asked Questions
Why did the venture market feel worse than the Q4 2022 data suggested?
Pitchbook may have overestimated Q4 activity, but the more likely reason, according to the post, is that most new rounds were internal, with companies raising from existing investors, which makes the market feel much quieter.
Why does a flat or falling VC market feel so difficult?
Mads Jensen describes venture capital as the definitive growth industry, wired to grow all the time, so even a static market feels tough and a declining one doubly so.