The Decline in Venture Capital in 2022: Where Is the Money Going?
In December 2021, publications like Institutional Investor predicted that the exponential growth in venture capital investment would continue apace into 2022. However, international VC investment dropped in Q1 of 2022, begging the question: Where has all the money gone, and why are fewer deals being completed? Like most investment queries, the answer is multifaceted. Arch Collective explores the underlying reasons for the decline and why tech startups could be ideally placed to take advantage of changing markets.
Venture Capital Investment: The Current Picture
Global VC investment sits at $144.8 billion for Q1’22, which is a drop of $47.1 billion from Q4’21 — a not-insignificant amount of money. If we look at the Americas alone, the figure dropped from $103.3 billion at the back end of last year to $77.6 billion so far this year. That’s nearly a 25% decline.
As well as the drop in overall investment, the number of completed deals has also fallen. 4,628 deals were completed in Q4’21 in the Americas. That’s now fallen to 4,138. The same pattern follows across other parts of the world, with the exception of Europe. Europe experienced a $0.2 billion increase in venture capital investment, although the number of deals dropped by nearly 500, suggesting startups are receiving slightly higher amounts of funding across Europe.
First-time VC investment is particularly low, accounting for just $12.6 billion globally in Q1’22. This could indicate caution on the part of investors who want complete confidence in their funding choices. This is why marketing and brand messaging are so important for startups to ensure they can break through that caution and transform it into excitement.
Figures from Business Wire.
Where Has the Money Gone?
In some ways, it hasn’t, not really. Although these figures show a drop compared to 2021, it’s important to remember that venture capital investment last year hit record highs in every quarter. Q4’21, in particular, was extraordinary, with global VC investment at over $191 billion. If you look back to 2020, 2022 is $40 billion up on even the most successful quarter that year. However, that doesn’t mean that there aren’t global factors impacting VC investment.
Russia’s Invasion of Ukraine
The war in Eastern Europe has had global economic implications, particularly due to sanctions and boycotts against Russia. As most countries refuse to take energy from Russia, costs rise as this energy must be sourced elsewhere. Domestic inflation is likely to rise, even in the U.S., but particularly in Europe, where the cost of living is already soaring. Investors may be responding by investing in commodities such as gold and energy rather than funding new ventures.
However, there’s good news for tech startups: Investment in cybersecurity has risen since the conflict started. Ukraine experienced a number of cyberattacks shortly before and in the early days of the invasion, and some publicly traded cyber-company stocks had a significant uptick. As investors become more clued-up about the risks of international cybercrime, tech startups venturing into the world of cybersecurity could find plenty of interested investors with the right marketing support.
Ongoing Supply Chain Issues
Supply chain problems are impacting most industries, with shortages affecting food suppliers, gift retailers, and even computer manufacturers. Investors will be taking a long, hard look at businesses before they lay their money down to ensure that the companies they’re considering funding are in a position to provide the goods or services they’re promoting.
Conversely, investors may start to invest in supply chain-related technology, making this an ideal disruption opportunity for savvy startups. In fact, innovative startups can leverage emerging technologies to be at the forefront of investors’ consciousnesses if they focus on products and apps that can help fix the current problems and make the future more tenable in an increasingly volatile global landscape.
Final Word
Ultimately, a turbulent start to 2022 on a global scale has reduced not only the overall value of venture capital investment but the number of deals completed. More money is being spent than any year prior to 2021, which is a good sign that VC investment could pick up once ongoing international challenges are resolved. Make sure your business gets the right attention and is ideally placed to receive funding and stakeholder engagement by partnering with a fractional chief marketing officer dedicated to securing success for B2B startups. We can set up a 15-minute introductory call and find out exactly what support you need to take your venture to the next level.
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