Looking Back: 2022 Venture Capital Trends Review

Looking Back: 2022 Venture Capital Trends Review

Taylor Grenawalt

Director,  Research & Insights

February 1, 2023

12 Minutes

It’s been a rollercoaster ride for the venture capital ecosystem over the last few years. However, the continued evolution of market dynamics has produced an uncertain near-term future for venture capitalists and entrepreneurs as each struggle to navigate the increasingly complex and treacherous landscape. But, by understanding where we’ve been, we can better understand where we may be going.

Looking back at VC Investment Insights

Investment Activity

Following the onset of COVID-19, venture capital activity soared to previously unseen heights. The ramp-up in activity can be attributed to numerous market dynamics, such as robust public market performance and a favorable financing environment, as well as technological dynamics, including the accelerated development and adoption of resilient and innovative technologies addressing pandemic-induced circumstances, such as remote work, telehealth, online learning, digitalized financial services, and more.

For the 10-year period ending in 2019, U.S. venture capital investors averaged $80.0 billion in transaction value across just over 10,000 transactions each year. From 2020 to 2022, following the onset of the COVID-19 pandemic, the average yearly transaction value jumped to $251 billion – more than triple that of the prior decade. Alongside this, these three ensuing years also represent the three most active years in terms of transaction value and deal count.

On the heels of the annual record high of $345 billion in 2021, investment value tapered meaningful throughout 2022. Although still the second most active year on record, by both count and value, the $238 billion in total investment value represented a 31% decline YoY – the largest annual drop on record and the first yearly decline since 2012.

Notably, much of the drop was driven by the year's second half; 3Q22 and 4Q22 posted double-digit declines in excess of 20% and 15% in terms of deal value and count, respectively.

Investment Deal Metrics by Segment

When looking at venture capital investment deal metrics, specifically deal size and pre-money valuation, nearly every market segment achieved new highs during 2021. However, during the subsequent year, various segments deviated as public market volatility seeped into pockets of the market to weigh on investor sentiment, investment multiples, and company comparables.

Deal Value

In terms of average deal size, following largely consistent years of growth, every segment of the venture capital market, aside from angel, reached new record highs in 2021. Coinciding with a public market runup, the jump in average deal size was led by the late-stage and growth segments, which generated annual increases of 51% and 46%, respectively.

Following a record-setting 2021, the average deal for size late-stage and growth investments contracted by 26% and 24%, respectively, whereas the deal values for the rest of the market continued to grow.  The seed portion of the market, one of the more relatively insulated pockets of the VC ecosystem, showed particular resiliency, maintaining strong year-over-year growth of 27%.

Pre-Money Valuation

In step with average deal size, pre-money valuations unfolded largely as one would expect in an environment characterized by public market volatility, souring sentiment, and declining public comparable valuations.

Aside from seed and early-stage, every segment marked new annual records with respect to pre-money valuations during 2021. Alongside this, each segment generated annual valuation growth rates in excess of 30%, led by angel and late-stage investments, which exhibited year-over-year increases of 107% and 96%, respectively.

During 2022, valuations across late-stage and growth deals, as well as angel transactions, retreated from their record highs set in the prior year, with each segment falling roughly 20%. However, despite the sharp pullback, the average pre-money valuation across all segments remains comfortable above their respective annual averages over the past five years. Naturally, given the strong relative valuation increases for late-stage and growth investments, partly driven by strong public performance, these two segments represent the most overextended, along with angel investments, in terms of relative positioning to their five-year annual average.

Venture Capital Exit Activity

Following three consecutive years of record-breaking proceeds, exit activity for venture-backed companies plummeted, with exit value reaching its lowest total annual amount in more than a decade, as shuttered public markets and diverging buyer/seller expectations all but halted exit activity.

The total annual exit value for venture-backed companies exhibited consistent growth for the five-year period ending in 2021; during this period, the total exit value generated an average annual growth rate of 69%. Activity topped off in 2021, with nearly 2,000 transactions yielding $753 billion in proceeds – both count and value represented new annual highs. In fact, the $753 billion in generated proceeds marked an increase of more than 130% over the prior annual record set in 2020.  

In the wake of the 2021 exit party crescendo, activity came to an abrupt and screeching end in 2022. Total venture capital exit activity fell to just $71.4 billion in value, a 91% decline year-over-year and the lowest annual amount since 2016. Persisting public market volatility and uncertainty, alongside rising financing costs and sellers who may not have been willing to sell at steep discounts to recent record valuations, resulted in each quarter of the year continuing to generate a diminishing amount of proceeds.

Venture Capital Fundraising

Amidst slowing investment and exit activity, driven by an accelerated return-to-market timeline for ballooning fund sizes, U.S. venture capital fundraising has remained resilient and robust.

Continuing on a decade-long trend of consistent growth in annual fundraising and fund count, the venture capital industry notched a record $163 billion in total capital raised during 2022 – the second consecutive year fundraising exceeded $100 billion. Despite the recent drop in funds, investors appear to remain flush with record levels of capital.

Looking Ahead

With that, we now know where we’ve been. Based on recent and historical activity and trends, the question now turns to: what can we expect may lay ahead for the venture capital ecosystem, investors, and entrepreneurs?

Dry Powder Accumulation

Dry powder refers to the capital held by venture capital firms that investors have committed but that firms have yet to invest. Dry powder has continued to accumulate over the past decade, hitting a record high of $299 billion at the end of 2022. On the heels of robust fundraising and falling investment and exit activity, we may see a continued accumulation of dry powder. On that same token, we could also see a ramp-up in investment and exit activity as expectations recalibrate and those in the position to capitalize on the environment and discounted opportunities deploy their capital.

Although GPs are armed with record levels of dry powder, that doesn’t necessarily mean the market will go into an investment frenzy. The slowdown in activity and prevalence of market headwinds have resulted in growing competition for venture dollars. As one would expect, given public market headwinds, the tension between funding demand and supply is most pronounced in the growth and late-stage segments of the markets. Furthermore, there’s a possibility that a significant portion of that dry powder is allocated to existing portfolio companies as investors attempt to prop up investments that have tumbled from their recent valuations and are struggling to survive and maintain operations. It’s also worth pointing out that a swell in startups may await right around the corner as many tech giants announce waves of layoffs. All these factors are likely to reinforce competitive pressures and dynamics that will keep the strain between VC dollar demand and supply taut across the ecosystem.

Continuation and Secondary Transactions

During times of turbulence and uncertainty, liquidity can mean the difference between survival and demise. Such times also present challenges for older vintage funds nearing the end of their investment and harvesting periods. Both factors may produce a proliferation of continuation and secondary transactions, in which investors and limited partners sell their interest in a fund or company to another investor to obtain liquidity and wind down positions. Investors may also use these transactions to double down and reinvest in high-conviction investments.

Fund Culling

A record 340 first-time funds raised capital in 2021, a number that fell back in line with the historical annual average during 2022. With cutthroat competitive dynamics and market headwinds, not all these funds will be back for a second fund. While we can expect a culling of sorts to play out, we can also expect new and opportunistic firms and venture capitalists to emerge as trailblazers, innovators, and leaders once the dust settles.

CVC and NTI Participation Pullback

Over recent years, corporate venture capitalists (CVC) and non-traditional investors (NTI) have played a meaningful role in investment activity. Over the past eight years, CVCs have participated in roughly 50% of all U.S. venture capital deals on an annual basis, up from 34% in 2012. Asset managers have similarly played an increasingly meaningful role in deal participation, growing from a participation rate of 17%in 2012 to 35% in 2022. However, as many of these CVCs and NTIs are forced to navigate their own business challenges and headwinds arising from the market environment, their participation is also likely to scale back – resulting in a weakened pillar of investment and exit activity support.

Room to Fall

As noted, although average deal sizes and valuations have fallen from their recent highs, further slack remains for both to fall before reaching their pre-pandemic annual averages. Such conditions are likely to reinforce a focus on maintaining lean and healthy operations and effectively managing runway to survive and capitalize on the present environment and opportunities.


The venture capital ecosystem has been flying high and enjoying the fruits of unprecedented times – buoyed by robust and continued investor support, favorable financing and exit market conditions, innovative technological developments, and attractive risk-adjusted performance.

However, the industry, including investors and entrepreneurs, is facing an increasingly complex journey as the VC party quiets. Although the ecosystem is and will face a challenging environment littered with pitfalls and obstacles, it will also face new opportunities for growth and innovation. Those who demonstrate the resolve and ability to navigate the turbulent market will be well-positioned to capitalize on emerging technological and innovative business and investment opportunities.

Companies, investors, and operators can turn to Vation Ventures as a trusted partner for navigating the turbulent market environment and ever-evolving technological landscape. Our platform, ecosystem, research, and consulting services offered equip you with the tools and knowledge necessary to drive innovation and performance — get in touch today and see how we can help you.