This Exit Closed

September 08, 2022 | Hayley McCollum, Research Analyst

Combination stacked column and line chart showing U.S. venture capital exit activity. Chart subtitle: Venture capital exit activity and exit value are down significantly from 2021 levels. Chart visual description: Left Y-axis shows “U.S. Venture Capital Exit Activity Count” and ranges from 0 to 2,000. X-axis shows years from 2007 through 1H22. Right Y-axis shows “U.S. VC Exit Activity ($B)” and ranges from $0 to $800B. Each column is comprised of three parts: in light blue, Acquisitions, in light green, Public Listings, and in light teal Buyouts. A dark tan line overlaps all representing the Total Venture Capital Exit Value. Chart data description: As of June 30th, VC exit counts are not yet at half of 2021’s level (1806 exits), but fairly in line with levels from 2014-2020. Total Value, however, is much lower; and 2022 is on track to come in at less than 15% of 2021’s level ($48B vs. $777B in 2021). 2021 was a huge peak for both sets of data. Chart sources: Pitchbook, Wall Street Journal as of June 30, 2022. End chart description.

Amid public market turbulence, venture capital exit activity and total exit value so far in 2022 are down significantly from peak 2021 levels. The venture-backed exit value in the U.S. came in just under $50 billion in the first half of the year. If this pace continues, 2022 is on track to come in at less than 15% of 2021 levels, returning to an exit value range last seen in 2017.

The number of acquisitions and buyouts as forms of exit are tracking close to 2021 numbers. Firms at the lower end of the market commonly use acquisitions and buyouts as exit strategies. This area of the market has also been more resilient against public market compares. Weakness in the IPO market — potentially on track for its worst year since Dealogic began tracking it in 1995 — is having the greatest impact on the decline in exit value. The IPO market has essentially shut down for venture capital-backed businesses. The familiar macroeconomic headwinds — high inflation, rising interest rates, and the risk of recession — have weighed on venture capital valuations alongside public market equities. Startups that were planning on an IPO are now forced to reevaluate their options. In the meantime, these companies have to rely on the strength of their balance sheets and the financial backing of sponsors. For companies still early in their life cycle and burning cash, liquidity may be a growing concern. Since valuations are down, VC managers are predicting 2022 could in theory be an attractive vintage year and entry point into the VC market. Partnering with VC managers who have experience investing through business cycles and periods of high and low valuations will prove to be important. Overall, with the outlook for the IPO market still uncertain, we are carefully monitoring the impact to the VC landscape and the potential impact to investors.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Hayley McCollum
Research Analyst

Get to Know Hayley

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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