VC Fundraising Dropped 65% Year-Over-Year in Q4

Venture capital (VC) firms are having a harder time raising funds.

The amount of money raised in new funds in the fourth quarter of 2022 was the lowest total for that quarter since 2013. The number of VC funds invested by fund backers during the quarter was the fewest for that quarter since 2012, Wall Street Journal (WSJ) reported Monday (Feb. 20), citing figures from Preqin.

These totals were down from those recorded a year earlier. The amount of money raised was 65% lower than in the fourth quarter of 2021, while the number of VC funds plunged from 620 during the last three months of 2021 to 226 in the same quarter of 2022, according to the report.

The trends driving the decline in VC funds are the same ones that impacted tech startups last year — fewer sellers going public through initial public offerings (IPOs), stocks and valuations falling, and interest rates and inflation rising, the report said.

In response to the lower demand, VC firms are raising funds more slowly, so they have longer to raise the next one, reducing the fees they charge their investors and cutting back on their goals for fundraising, per the report.

Limited partners are making changes, too. They are becoming more selective and are less likely to back funds run by first-time managers, according to the report.

With venture capital becoming scarce, tech startups have resorted to alternative funding to finance themselves, including bridge loans, structured equity, convertible notes and participating bonds, the Financial Times reported in December.

“Everyone is taking corrective action,” one Silicon Valley investor told the FT.

PYMNTS’ FinTech IPO Index found that the stocks in this category dropped 51% in 2022.

Of the more than 45 names tracked by the index, only two avoided becoming “busted IPOs” whose stocks traded below their initial offering price during the year.

As PYMNTS reported on Jan. 3, the specter of rising rates and inflation forces key markets to pull back on their transactions, leading to slower growth or outright declines in top lines, making it more expensive to operate and operate and sending investors searching for yield elsewhere.