Deal flow in the venture capital sphere declined in the first quarter of 2023, both in terms of deal value and the number of deals, according to a quarterly update released on Friday by Preqin.
Specifically, the aggregate deal value amounted to $67.4 billion in the first quarter — a 58% plunge from the first quarter of 2022, amid market uncertainties, Preqin said in the report. Meanwhile, the number of deals totaled 4,286 in the first quarter, the lowest such figure in almost a decade.
According to the report, deal value totaled $77.1 billion in the fourth quarter of 2022, while the number of deals amounted to 5,030.
The North American region saw the biggest decline in deal numbers in the first quarter — plunging by 53.1% year-over-year to reach 1,092 deals. Asia and Europe witnessed year-over-year declines of 33.9% and 30%, respectively.
Later-stage investments endured the greatest proportional pullback in deal numbers and in average deal size, Preqin noted in the report, while early-stage deals showed "more resilience on pricing across the market, albeit less than in the recent past."
Global venture capital fundraising reached $27.5 billion in the first quarter of 2023, surpassing the $25.2 billion figure in the fourth quarter of 2022, but a 66.8% plummet from the record highs of the first quarter of 2022.
A total of 144 funds closed during the first quarter of 2023, compared with a per-quarter average of 460 over the last five years. Only five funds accounted for half of the value of fund closes in the first quarter. Preqin noted in the report that the decline in the total number of funds closed and a higher average fund size "suggest a more challenging environment for smaller managers."
The aggregate exit value reached $18.5 billion in the first quarter, a 48.1% decline from the fourth quarter of 2022, thereby continuing the downward trend.
"The last time we saw any lower numbers was back in the third quarter of 2015," Preqin stated in the report. "This is driven predominantly by low average exit sizes."
In a news release issued in conjunction with the report, Angela Lai, vice president of research insights at Preqin, described the first quarter as a "downbeat" period for venture capital.
"With the fall of Silicon Valley Bank and continued uncertainty in capital markets, investors remain cautious, resulting in a weak fundraising environment," she said. "As capital flowing into venture capital slows, firms will need to consider whether capital reserves for follow-on investments are sufficient if fundraising cycles start to get drawn out, a reversal from what we have been seeing in the recent past."
