In Q1’22, VC investment in the US fell from the record-high seen in Q4’21, although it remained substantially higher than every quarter prior to 2021. The two largest deals for the quarter were a $3 billion raise by Altos Labs and a $935 million raise by logistics company Flexport.

Geopolitical uncertainty and supply chain challenges driving investment in US

The ongoing disruptions to the global supply chain, combined with geopolitical uncertainties related to the Russia-Ukraine war and US-China relations has put a renewed emphasis on domestic availability of certain products required to help drive economic growth in the US. One particular area getting attention is semiconductors. In Q1’22, Intel announced that it would build a semiconductor plant in the US6. Given the focus being put on the industry, it is likely that there will be additional VC investment flowing to the semiconductor space over the next few quarters. Other critical support or input technologies will likely also see additional interest and investment from VC investors. 

Healthtech and biotech continue to attract VC investment in the US

In the wake of the COVID-19 pandemic, health and biotech companies have continued to attract significant funding from VC investors in the US. During Q1’22, drug discovery company Eikon Therapeutics raised $517 million. VC investment in the space has been quite broad, ranging from digital healthcare models and software to support medical practitioners to drug discovery and medical devices. As both medical practitioners and users of digital health services have become more comfortable with virtual models of care over the past two years, it is expected that digital mechanisms to enhance care will continue to be an area of interest to investors moving forward.

Downward pressure on valuations sparking unicorn concerns

With significant uncertainty in the market, valuations are starting to come down. This is beginning to cause concern that some unicorns many not be able to raise new funds at or above their previous valuations – a circumstance that has been primarily unheard of over the last two years. If the situation intensifies, some unicorns may be required to consider down rounds. Others might decide to maintain their warchest rather than raise new funds, which could stall valuation increases – creating a number of ‘Zombies.’ 

Agtech grows on the radar of US investors

Agtech gained a significant amount of attention from VC investors in the US during Q1’22 – with investments ranging from indoor vertical farming company Plenty’s $400 million Series E raise to cell-cultured seafood company Finless Foods’ $34 million Series B raise. Given the growing importance of food security and sustainability both in the US and globally, it is expected that investments in agtech will grow over the coming quarters.

Trends to watch for in Q2’22

Given the amount of dry powder available in the market, VC investment is expected to remain relatively robust in the US heading into Q2’22, the Russia-Ukraine war, rising inflation, and increasing interest rates will likely be major factors in investment conversations.

While fintech, healthtech, and EV technologies are expected to remain hot areas of VC investment in Q2’22, proptech is also well positioned for growth given increasing real estate prices and the rapid rise in investors interested in secondary real estate markets outside of Silicon Valley, New York and Los Angeles.

The US federal government’s recently passed infrastructure plan is also expected to pour money into a number of key sectors, including traditional infrastructure, internet connectivity, and electric vehicle infrastructure. As the plan is put into action, it will likely create new opportunities for startups – which could, in turn, catalyze VC investment.

   

Venture financing in U.S.

After experiencing a record-setting year in 2022, IPO activity and exit value dropped off a cliff in Q1’22. A combination of geopolitical and macroeconomic concerns drove a significant amount of volatility in U.S. capital markets, causing companies that may have been considering an IPO exit to take a pause. IPO activity is expected to remain muted heading into Q2’22. Should the trend continue beyond Q2’22, we could see some softening of interest from VC investors.

Global Leader — Emerging Giants,
KPMG Private Enterprise, and Partner
KPMG in the US

  • VC deal value drops to $70.7 billion

  • Deal volume remains robust reaching 3723 deals

  • First-time venture financings have strong start to the year

  • Venture fundraising roars off to a massive start to the year

  • Follow-on funds attract higher percentage of overall fundraising

  • US sees 5 deals over $500 million in Q1’22

   


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