Insight

Venture Pulse Q1 2022

The Venture Pulse report provides insights around trends, opportunities, and challenges in the U.S. venture capital market.

Conor Moore

Conor Moore

Partner, National Leader, KPMG Private Enterprise, KPMG US

+1 415-335-8401

In Q1’22, venture capital (VC) investment in the U.S. fell from 2021 highs as uncertainty in the market rose. However, although VC investment fell from the record-high seen in Q4’21, it remained substantially higher than every quarter prior to 2021.

Geopolitical uncertainty and supply chain challenges driving investment in U.S.

The ongoing disruptions to the global supply chain, combined with geopolitical uncertainties related to the Russia-Ukraine war and U.S.-China relations has put a renewed emphasis on domestic availability of certain products required to help drive economic growth in the U.S. One particular area getting attention is semiconductors. Given the focus being put on the industry, it is likely that there will be additional VC investment flowing to the semiconductor space over the next few quarters. Other critical support or input technologies will likely also see additional interest and investment from VC investors.

IPO market door swings shut in Q1’22

At the end of 2021, there was a backlog of highly valued private companies that investors expected to IPO early in 2022. These IPO exits failed to materialize in the wake of the volatility experienced by the public markets during Q1’22, driven in part by the sudden Russia-Ukraine war. The market volatility hit technology stocks particularly hard, likely helping to swing the IPO exit door shut. While a small number of companies could potentially IPO despite the turbulent environment, most appear to have shelved their plans for now given the degree of market uncertainty.

With the likelihood of near-term IPOs shrinking, there could be an increase in secondary listings in order to give their earliest investors exit opportunities. The growing popularity of secondaries over the last few years, continues to give management more options to provide liquidity events to early investors while allowing them to keep their companies private longer.

Downward pressure on valuations sparking unicorn concerns

With significant uncertainty in the market, valuations are starting to come down. This is beginning to cause concern that some unicorns many not be able to raise new funds at or above their previous valuations–a circumstance that has been primarily unheard of over the last two years. If the situation intensifies, some unicorns may be required to consider down rounds. Others might decide to maintain their war chest rather than raise new funds, which could stall valuation increases–creating a number of ‘Zombies.’

Trends to watch for in Q2’22

Given the amount of dry powder available in the market, VC investment is expected to remain relatively robust in the U.S. heading into Q2’22, the Russia-Ukraine war, rising inflation, and increasing interest rates will likely be major factors in investment conversations.

While fintech, healthtech, and EV technologies are expected to remain hot areas of VC investment in Q2’22, proptech is also well positioned for growth given increasing real estate prices and the rapid rise in investors interested in secondary real estate markets outside of Silicon Valley, New York and Los Angeles.

The federal government’s recently passed infrastructure plan is also expected to pour money into a number of key sectors, including traditional infrastructure, internet connectivity, and electric vehicle infrastructure. As the plan is put into action, it will likely create new opportunities for startups–which could, in turn, catalyze VC investment.

After experiencing a record-setting year in 2022, IPO activity and exit value dropped off a cliff in Q1’22. A combination of geopolitical and macroeconomic concerns drove a significant amount of volatility in U.S. capital markets, causing companies that may have been considering an IPO exit to take a pause. IPO activity is expected to remain muted heading into Q2’22. Should the trend continue beyond Q2’22, we could see some softening of interest from VC investors.
Conor Moore, National Leader, KPMG Private Enterprise

In the U.S. in Q1'22

VC deal value drops to $70.7 billion

Deal volume remains robust reaching 3723 deals

U.S. sees 5 deals over $500 million in Q1’22

 

For insights into global VC investments


About the Pulse Series

The Pulse Series of reports—Venture Pulse and the Pulse of Fintech—analyze the latest global and regional investment trends and insights. Included in the reports we provide perspectives and analyses on the lifecycle of venture capital investments as well as overall fintech investment across the Americas, Europe, and Asia. In each report, we share the latest valuations, financing, deal sizes, mergers & acquisitions, exits, corporate investment, and industry trends.

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