Q2’22 Venture Pulse Report — Americas

Late in Q1’22, the recessionary climate in the US began to affect the VC market, with late-stage unicorns the first to feel downward pressure on their valuations. During Q2’22, the impact broadened, with companies raising seed and Series A rounds also seeing their valuations drop considerably. This is driving VC investors both in the US and elsewhere in the Americas to evaluate potential deals more rigorously, rather than investing because of a fear of missing out—a predominant trend during much of 2020 and 2021. Heading into Q3’22, funding rounds will likely take more time to complete. Companies at early deal stages will likely require stronger business cases and revenue models to attract investors, while VC investors will likely conduct more robust due diligence on potential deals.

During Q2’22, CVC investment in the Americas dropped from the high levels seen over the past five quarters. The decline likely reflects a combination of factors, such as corporates focusing on their core operations in light of current uncertainties, pulling back on funding to their VC arms, and reducing investments in startups that are not seen as strategic priorities. In Q3’22, corporates will likely focus predominantly on making strategic VC investments aimed at complementing their core businesses.

In the Americas, the crypto and blockchain space initially showed some immunity to the valuation and funding corrections taking place during Q2’22; however, this has started to change—with crypto firms now trying to cope with a major sell-off of crypto assets. During Q2’22, US-based BlockFi saw its valuation drop to $1 billion; it is now in the process of raising a down-round in order to obtain needed capital. The sudden tightening of the crypto space will likely drive consolidation among crypto firms heading into Q3’22 as the best firms rise to the top and others get left behind.

Both the number of VC deals and total VC investment in Canada dropped in Q2’22 as the pace of deals activity continued to slow. Fintech, health and biotech remained the most prominent areas of VC investment in Canada, with digital bank Neo raising $145 million during the quarter—earning the fintech unicorn status. VC investors in Canada have started to become more discerning with their investments, advising their existing portfolio companies to shift away from broad-brush growth strategies to more laser-focused strategies aimed at helping them break-even or achieve profitability.

The economy in Brazil performed better than expected during Q2’22, particularly in terms of GDP growth. VC investment, however, dropped markedly during the quarter, likely a result of geopolitical uncertainty and other global macroeconomic factors. Despite the complex market conditions, Brazil attracted several large VC rounds, including $100 million raises by cybersecurity and biometrics company Unico and B2B communications and social commerce firm Take Blip.

With a federal election slated for the autumn, VC investment could remain soft in Brazil well into the second half of the year. Despite VC funds in the country having a significant amount of dry powder, investors are expected to act more like PE firms heading into Q3’22, with stricter criteria for valuations, cash generation, team size, and OpEx as a whole.

With no end to current uncertainties in sight, VC investment across the Americas could be relatively soft heading into Q3’22. Sectors like crypto and blockchain, e-commerce, and other consumer-focused industries could face consolidation as best-in-breed companies set themselves apart from the competition and companies that didn’t plan for a pullback run out of cash.

Down-rounds could also become more prevalent, although many startups will likely exhaust other options first—conducting layoffs, delaying or terminating projects, freezing R&D spend and slashing other expenses in order to conserve cash and delay new fundraising as much as possible.