Due to a much greater decline in late-stage financing, North American startup investment for the third quarter was less than half of its levels from a year ago.
That was the main conclusion drawn from a compilation and analysis of information on venture funding in the United States and Canada. It demonstrates how the slump that started earlier this year has gotten worse recently as tech values in the public and private markets decline and the IPO window stays essentially closed.
In total, investors invested $39.7 billion in seed-to-growth stage ventures in the third quarter, which is a decrease of 37% from the second quarter and a 53% year-over-year decline. The stage where the year-over-year reduction was most pronounced—down 63 percent in the most recent quarter—was late stage.
The overall capital for late-stage venture and technology growth in Q3 was $19.4 billion. That represents a decrease of over two-thirds from the $53 billion invested in the same quarter last year. Additionally, funding is down roughly 45% from Q2. The majority of the slump in late-stage private markets may be caused by public markets. Investors are rethinking valuations as shares of IT and biotech companies have fallen substantially on key exchanges. Additionally, because there aren’t many IPOs, pre-IPO rounds aren’t being completed either.
In the meantime, many late-stage businesses, who are still loaded with cash from the 2021 funding frenzy, may be delaying new raises until signs of market recovery appear. We did witness several significant rounds, even as late-stage contracts. The three companies that received the most late-stage funding in Q3 were urban greenhouse company Gotham Greens ($310 million Series E), small business insurance provider Pie Insurance ($315 million Series D), and digital manufacturing startup VulcanForms ($355 million Series C).
Investors also slowed down the early-stage deal-making. They invested $17 billion in 879 recognised fundraising rounds during Q3. That amounts to a 40 percent decline in dollars from the previous year’s total and a 28 percent decline from Q2. Because companies are further away from an exit, early stage is experiencing a less severe drop than late stage. Investors seem optimistic that, as these firms mature, market circumstances will improve.
The $1 billion Series A for TeraWatt Infrastructure, which supplies charging stations for electric vehicles, was by far the largest early-stage deal of the quarter. Next came a $350 million Series A for a spinoff focused on treating asthma, Areteia Therapeutics, and a $300 million Series B for Mysten Labs, a company that creates Web3 infrastructure. Investors invested a total of $3.3 billion in acquisitions at the seed stage in Q3. Down 18% from Q2 and 6% from the prior quarter.
The relatively robust performance of seed-stage companies shows that investors are more optimistic about the long-term than the short-term prospects. Additionally, while the likelihood of failure is higher for freshly founded firms, the risk is lessened by the lower valuations.
By seed standards, some of the Q3 rounds were exceptionally huge. In July, $50 million was raised for VeeFriends, an NFT enterprise focused on intellectual property. In September, a $32 million seed round was secured by the senior-focused mental health firm Rippl Care. But those were the exceptions. Only 25 deals totalled $15 million or more, with the median announced seed or pre-seed round for Q3 being around $2 million.
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