Q3 Venture Funding Slows to a Crawl

Venture funding in the third quarter slowed to a crawl, according to a new report out this morning from Pitchbook:

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Estimated deal count in Q3 (4,074) is off by almost 20% from the quarterly record high recorded in Q1 (5,049) and is the lowest count seen in any quarter since Q4 2020 (3,364). Q3 saw $43.0 billion invested in VC deals across all stages, a nine-quarter low, cementing a tone of investor hesitancy and increased focus on business fundamentals amid the global economic downturn, even if the numbers remain high on a historical basis.

Exits were just $14B in the entire quarter. This is in line with figures from 8 years ago.

Meanwhile, venture funds continued to raise huge sums:

US-based VC funds have raised $150.9 billion, surpassing last year’s previous record and taking the 21-month fundraising total above $298.1 billion.

As an angel investor, I found July and August particularly slow. That’s usually vacation season anyhow, but this year the market was even colder than usual.

At the end of August, I spoke with the head of one of the most active VC’s in the US. He predicted a busy fall.

I was skeptical.

But sure enough, I started to see activity pick up in September. Those deals will probably take until at least Q4 to close, so they’re not reflected in Pitchbook’s numbers.

Personally, I made four investments in Q3, right around my usual pace. A down market is no time to back off — if anything, we want to be making it rain to take advantage of lower valuations!

But nonetheless, a lot of investors got spooked. I saw some great deals I was in only raise half as much as expected as investors pulled back.

Especially at seed stage, the market we’ll exit in will be totally different from today’s. So we should always be investing in great companies.

Warren Buffett said it best in his 1986 letter to shareholders:

What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Where do you think the venture market is headed? Leave a comment at the bottom and let me know!

More on tech:

The Startup Red Flags

You’re Doing Investor Meetings Wrong

Shopify’s Tobi Lutke on Layoffs and Building for the Long Term

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Photo: “dead slow sign” by satguru is licensed under CC BY 2.0.


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