Venture capital (VC) is shrinking but it isn’t going to dry up everywhere.
- A new report from accounting firm KPMG International shows that VC is going to react differently in different sectors as the economy continues to struggle.
- “Corporates invested $40.5 billion into startups around the globe in the three months ending in September … down from $59 billion the quarter prior and down from nearly $100 billion in the third quarter of 2021,” says Fortune.
- “Even at the seed stages, founders tell me they’re struggling to pick up traction from investors they are pitching. VCs want to see a business plan that is more hashed out. They want more signs of traction,” Fortune continues.
- “With the turbulent market conditions expected to continue in quarter four of 2022 and into 2023, VC investors in the U.S. will likely remain very cautious when making deals despite the availability of dry powder. Corporate valuations will likely remain depressed, while the number of companies holding down rounds will likely increase,” says KPMG.
Why it’s news
“It’s the trifecta: inflation is high, interest rates are rising, and talk of a global recession is getting louder. That means that consumer-focused companies that might have boomed during COVID are under closer eye,” says Fortune.
The current economic situation does create opportunities though, and large sections of the economy are still holding strong.
Retail, food, and commerce are likely going to be hit hard while energy, biotech, health care, and other innovative tech sectors are going to see opportunities. Business productivity, cybersecurity, and other sectors are expected to stay fairly strong, KPMG reports.
As we previously reported, crypto VC is having its own problems at the moment as major currencies endure the ongoing “crypto winter.”
“So what’s the takeaway? A slowdown could become our new reality for a while. Rounds will take longer to close, investors will grill down on due diligence and take a second look at those forecasts, and companies will be a bit more conservative when it comes to cash,” says Fortune.