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Wednesday, Apr 24, 2024

VC Firms Remain Cautious

When it comes to forecasting the immediate future of the venture capital market, a J.P. Morgan-backed study into venture capital activity in the third quarter concludes “there are easy answers and there are hard ones.” But Los Angeles appears to be one of few cities that can say it’s effectively weathering the storm.

The study, conducted by Pitchbook through a partnership between J.P. Morgan and Houston-based Insperity Inc., found that venture capital activity totaled $43 billion across an estimated 4,074 deals in Q3 2022. With VC deal activity for the year currently totaling $145 billion, 2022 seems on track to fall well short of the historic heights of 2021, which saw a total deal value of $271.6 billion.

Joanna McFarland’s HopSkipDrive announced funding in the third quarter.

On the more optimistic side, the study found that venture capital “isn’t panicking over quarterly fluctuations.” The authors added that third-quarter activity remains above historic averages, which represents “a durable, positive trend in the industry.”

Health care, clean tech, energy and transportation industries represented “high points” of venture capital activity this year with deal counts among these four sectors already reaching or exceeding full-year numbers for 2020.

Deal activity in Los Angeles is much healthier than most major markets as of the third quarter, according to the study, with the city trailing behind only New York City and the Bay Area in terms of deal count and overall deal value. For the market in general, however, the authors note that “some points of stress” are appearing. The study found that exits are down 50% this year from the previous year; public listings, in addition, are at record lows.

“Q3 can provide reasons for optimism or pessimism, depending on where the viewer is looking. However, it has also opened the door to a variety of opportunities for those who are paying attention,” the authors of the Pitchbook-NVCA Venture Monitor wrote in an executive summary.

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STEVE CRIGHTON Author