Venture Capital Funds Experience 17% Plunge in 2022, Impacting Fundraising and IPO Market
Venture capital funds faced a significant setback in 2022, with a decline of 17% in performance, which has had a ripple effect on fundraising and the IPO market, according to a recent report by PitchBook. This decline comes after a brief peak in the second quarter of 2021, where rolling one-year internal rate of returns (IRR) temporarily reached 74.9%.
The poor performance of VC funds throughout last year has directly impacted the IPO market, causing distributions to decline and contributions to shrink. As a result, net cash flow has been negatively affected, compounding the challenges faced by these funds. This drop in performance and subsequent impact on cash flow has led to a decline in fundraising activities in 2023.
One possible reason for the slower pace of fundraising can be attributed to the large amount of money still tied up in companies without a clear exit strategy. Additionally, there is a significant amount of capital waiting on the sidelines in the form of dry powder, ready to be deployed but yet to find suitable investment opportunities.
Despite these challenges, some companies have managed to secure funding. Harri, a New York City-based employee management company for hospitality businesses, raised $43 million in Series B funding, with Atalaya Capital Management leading the round. Golub Growth and others also participated in the funding round. Ounce, a Washington, D.C.-based company that coordinates health care plans and provides services to low-income housing communities, secured $5.2 million in seed funding. The funding round was led by Meridian Street Capital and Flare Capital Partners, with participation from Metrodora Ventures and others.
In addition, Goodhood, a subscription service for car maintenance and repairs based in Ann Arbor, Michigan, raised $2.6 million in seed funding. Bullish, Mucker Capital, Okapi Capital, New Age Ventures, Kubera Venture Capital, and Impact Ventures all participated in this round. Meanwhile, Komment, a Munich-based platform utilizing artificial intelligence for software and code documentation, secured $1 million in pre-seed funding. The round was led by Craft Ventures and attracted investment from angel investors.
In an acquisition deal, Tquila Automation acquired Element Blue, an AI-powered healthcare portal for patients and providers based in Houston, Texas. However, financial details of the transaction were not disclosed.
The decline in venture capital funds and its impact on fundraising and the IPO market highlight the challenges faced by the industry. As companies strive to navigate these difficulties, it remains to be seen how the landscape will evolve in the coming months and whether performance will rebound.
