According to the most current data from Pitchbook, venture capital companies throughout the world suffered a sharp decline in the amount of funds they were able to attract to their vehicles during the first quarter of 2023.
According to information obtained from a source of capital market statistics, VCs raised 38% less money over the 12 months that ended on March 31 than they did during the same time last year.
In addition, there were far fewer funds raising money over this time, from 2,824 in Q1 2022 to just 1,382 in the first quarter of current year.
However, on a quarterly basis, VC firms worldwide only raised $29.5 billion, which is 72% less than what they did in Q1 2022.
Raising Capital May Be More Difficult, but Money Is Still Flowing, According to PitchBook
The decline in fundraising is being caused by a number of issues. Due of the uncertainties around potential exit strategies and lower anticipated returns, limited partners are being cautious with their investments.
Given the weak stock market, it will be difficult to finance high valuation levels for 2021. Some funds have also delayed their upcoming fundraising rounds and slowed down their capital deployment.
The study acknowledges notable regional movements, with funds in Asia generating more than half of all venture capital funds globally in Q1. Large funds from China connected to regional governments or state-owned businesses, which accounted for 68% of funds raised in Asia, were the main force behind this. North America, where 53% of the total funds were raised, also showed a more varied fundraising ecology.
Hilary Wiek, Senior Strategist at PitchBook, observed that in her talks with general practitioners, the fundraising environment has been depressing, even among seasoned fund managers.
During the first quarter of this year, the financing cycle for average and bottom-quartile private capital funds actually decreased from around 13 and 5 months, respectively, in 2022 to 12 and 4 months, respectively.
Overall, according to Wiek, the facts do not support a full-fledged collapse of the private capital market, similar to the one that occurred in 2008–2009 during the subprime crisis. The atmosphere is simply described as « difficult » by the speaker.
“In essence, there does appear to be some support for the feelings that fundraising has been difficult recently, but it is hyperbole to state that fundraising has ground to a halt, as hundreds of funds have managed to close on billions of dollars of commitments” the researcher claims.
More than 15% of the assets under management by VCs are now made up of dry powder
The amount of money that venture capitalists have not yet invested because of bad market circumstances is known as dry powder, and PitchBook provides data on this important measure.
According to the firm’s study, VCs have close to $500 billion in cash on hand as of September 30, 2022. According to reports, the majority of these cash were collected between 2020 and 2022.
Around 15% of the $3.3 trillion in assets under management (AUM) in the VC industry are not allocated to startups. In comparison to the previous year, this indicates an increase of almost 400 basis points.
Chegu Industry Development Fund and Shanghai State Owned FoF I fund, with assets under management of $7.2 and $2.9 billion, respectively, are the two largest Chinese funds on the list.
The B Capital Global Growth III fund, which has $2.1 billion in assets, is followed by the Bain Capital Venture Fund 2022 and the Felicis Ventures IX fund, which have respective AUMs of $1.4 billion and $825 million. These three American funds are the next three largest funds to make it into the top five globally.
