The pace at which startups raise rounds worth $100 million or greater is slowing, according to early data.
Looking at historical periods stretching back a year, TechCrunch’s analysis of PitchBook data shows Q2 2022 is on pace to undershoot the first quarter’s tally of so-called mega-rounds. And data from Crunchbase shows a similar decline.
When you consider that Q1 2022 saw fewer rounds worth $100 million or more than both the final two quarters of 2021, we’re seeing a slowdown in late-stage, private-market investment.
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It’s not a shock that the there are fewer large venture capital rounds happening. Indeed, we anticipated it, given the retrenchment we’ve seen in software valuations more generally, and the fact that the risk climate for private-market deal-making has become more conservative in recent months. A massive public-market selloff coupled with geopolitical instability and inflation concerns will do that.
While the late-stage venture capital market is becoming more staid, the crypto world is seeing immense deals that are raising hundreds of millions of dollars. The contrast is notable. Let’s talk about it.
It’s still a good time to raise huge rounds
What makes it hard to grok the changing venture capital market is the fact that we’re coming off all-time highs. So while the data indicates that there were between 100 and 132 venture rounds worth $100 million or more (PitchBook and Crunchbase data, respectively) thus far in Q2 2022, we have to understand that there is still a lot of money flowing today compared to historical norms, even if the numbers represent a near-term decline.
Looking behind, it seems clear that 2021 will prove a high-water mark for venture capital activity for some time. There’s little indication that 2022 will be able to beat last year’s tally, and with economic clouds on the horizon, anyone betting that 2023 is going to be straight up lit is wagering against prevailing wisdom.
So, yes, startups are still raising several $100 million and greater rounds per day around the world, but they’re doing so at a pace that will see their cohort undershoot Q1 2022 results by about 80, and about 140 when compared to Q4 2021.
For late-stage startups, it’s bad news, even if it is utterly unsurprising.
All this contrasts somewhat humorously with activity from the weekend regarding the latest Yuga Labs — the folks behind the Bored Apes — news. I quote Bloomberg here as I cannot improve on their linguistic parsimony:
Yuga Labs, the creator of the popular Bored Apes Yacht Club collection of NFTs, launched a sale Saturday of virtual land related to its highly anticipated metaverse project, raising about $320 million worth of cryptocurrency in the largest offering of its kind. Demand was so strong that activity related to the event caused ripple effects across the entire Ethereum blockchain, disrupting activity and sending transaction fees soaring.
Holders of the ApeCoin token who verified their identities jockeyed to buy deeds for 55,000 parcels of virtual land in Otherside, the project’s planned metaverse game and the latest extension of the Bored Ape franchise.
I think that accumulated crypto wealth in 2022 is not dissimilar from venture capital in 2021: There’s more capital around than there are ideas, and so we’re seeing money slosh into “known” or “blue-chip” bets with an intensity that makes our eyes pop. Sure, Yuga Labs has managed to create a number of NFT projects that have done well, and, yes, it has raised venture capital and has a big plan to delve into the metaverse, but the scale of its digital land sale is still pretty wild.
Folks spent hundreds of millions of dollars on digital land, effectively on spec, in hopes that it will appreciate. That’s not too far off the cost of the recently topped-off Raffles Boston Back Bay Hotel & Residences, which isn’t too long a drive from where I live. I highlight that building as a data point for how much money is sluicing its way around the crypto world. (The building has 35 stories, and “147 guestrooms and 146 residences are joined by 16 gathering spaces,” per Luxury Travel Advisor.)
Crypto’s 2022 is even seeing some 2021 venture-style overcrowding. Last year, we saw SaaS companies raising at insane multiples as investors effectively pre-bought years of growth to just get into a deal. The Yuga Labs land mint was such a big deal, it choked the Ethereum blockchain, sending the price of any transaction through the roof — more capital than opportunity, once again.
I don’t want to overstress the 2021/venture-2022 crypto analogy. But watching the mega-round venture world contract as the crypto world stays silly is a good reminder that the web3 world is in fact siloed from the rest of the global economy to a large degree. Why? Because once you buy digital assets, it’s simpler to keep them in-loop than it is to cash them out. So the stored wealth in crypto is less liquid than you might think.
So what do you do with it? Buy digital land, of course.