Note: Includes Later Stage VC, Early Stage VC, Accelerator/Incubator, Seed Round and Grant deal types. Source: Pitchbook.
Analysis by Beacon Economics
Highlight
- In 2021, VC funding in the US (across all segments) was 33 percent higher than in any other year on record. Coming off of these heights, total VC investment in the US fell 42 percent in 2022. Likewise, there was a big drop in total VC funding in California, where the amount of investment fell by 31 percent during the year. This trend has continued into 2023. Until August of this year, VC investment in the US stood at 58 percent of the 2022 level, while VC investment in California amounted to 47 percent of the 2022 figure.
Challenge
- Two primary reasons account for this drop in VC funding. First, the level of investment seen in 2021 was unsustainable. A perfect storm of factors drove VC investment to unparalleled highs in 2021, including historically low interest rates, pent-up demand following the COVID-19 pandemic, and an exuberant investment environment, which saw the SP500 grow 27 percent during the year. Second, the climate for investment changed markedly in 2022, driven by a surge in interest rates, increased geopolitical uncertainty, a falling stock market, a growth scare, and rapid inflation. Yet despite this backdrop, 2022 ranks as one of the top three years on record in the US, with respect to the total amount of VC funds invested.