Venture Pulse Q3 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 Q3’22, VC investment in the US fell to $43 billion—the lowest amount since Q2’20—amidst ongoing concerns related to high inflation, rising interest rates, and a US recession—in addition to uncertainty related to the midterm elections scheduled for Q4’22. Despite the challenges permeating the US market, a number of companies raised large funding rounds during the quarter, including space exploration company SpaceX ($1.9 billion), electric vehicle infrastructure company TerraWatt Infrastructure ($1 billion), and nuclear innovation company TerraPower ($750 million).

Leverage shifting from startups to investors

Over the last few months, there has been a dramatic shift in the relationship between startups and investors given the challenging market conditions and the significant downward pressure on valuations. While there continues to be a robust amount of dry powder in the market, VC investors in the US have become a lot more cautious and selective in their deal-making activity, scrutinizing deal terms more rigorously than in recent years and asking for preferential treatment (e.g., liquidation preferences, preferred shares, allocation of board seats) from startups in exchange for funds.

AI and machine learning sectors reaching an inflection point

In recent years, a broad swath of companies focused on artificial intelligence and machine learning received a significant amount of attention from investors in the US. The space has now come to an inflection point, maturing enough that startups are now figuring out niche ways to use AI and machine learning to drive innovation in different industries, such as healthcare and financial services. Even in the current market, startups able to create real, sustainable value using AI and machine learning will likely be attractive to VC investors.

US exits practically dead in Q3’22 as companies try to wait out uncertainty

Exit activity in the US was incredibly soft in Q3’22, with just $14 billion in exit value—a level not seen since Q4’16—as IPO activity continued to be non-existent in the wake of the volatility in the public markets and ongoing concerns related to valuations. M&A activity was also quite slow during Q3’22. While the depressed valuations environment has led to increasing interest from PE firms and corporates looking to make deals, startups that may have been ready for an exit earlier in the year are likely trying to wait out the uncertainty with the hope that valuations will bounce back.

Trends to watch for in Q4’22

With the turbulent market conditions expected to continue in Q4’22 and into 2023, VC investors in the US will likely remain very cautious when making deals despite the availability of dry powder. Corporate valuations will likely remain depressed, while the number of companies holding down rounds will likely increase.

From a sector perspective, VC investment is expected to remain relatively resilient in areas like energy, business productivity, cybersecurity, and healthcare, while interest in food and grocery delivery, consumer retail, and eCommerce is expected to fall.

M&A activity in the US is well positioned to increase over the next quarter or two as companies fail to attract new funding and PE investors and corporates look for good deals. Should the IPO window remain firmly closed, some companies that may have been preparing to hold an IPO earlier in 2022 could decide to sell instead.

For remainder of 2022, we’ll continue to see layoffs. We’ll continue to see down rounds. I also expect we’ll start seeing increased M&A activity—both in terms of companies that might have otherwise gone public and also public companies that are less expensive than they were a year ago. Employee and employer behavior around hybrid working will continue to influence where funding may go, in addition to consumer behavior with respect to e-commerce versus going back to the store.
Conor Moore, National Leader, KPMG Private Enterprise

In the U.S. in Q3'22

VC deal value plummets to $43 billion across 3076 deals

Dry powder underpins median deal size increases

Energy sector sees significant increase in average deal size


Corporate VC drops to lowest levels since Q3’20ion across 3076 deals

Mega-funds grow in size and volume YoY


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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