Q1 2022 Venture Financing Report – Deal Volume Remains High, Varies by Industry

May 11, 2022

Cooley continued to represent a near-record number of emerging companies and venture investors in disclosable VC financings during the first quarter of 2022. In Q1 2022, Cooley handled 391 disclosable deals, representing $24.2 billion of invested capital, which was the firm’s third-highest deal volume in history, exceeded only by Q2 and Q4 2021, which had deal counts of 399 and 392, respectively. Only Q4 2021 had a higher total for invested capital, at more than $25 billion. The strong Q1 2022 invested capital amount was boosted by deals from January 2022, where invested capital totaled $12.1 billion, the highest amount for any month in the history of this report.

As revealed below in our industry sector spotlights, while the quarterly totals are very high, those large numbers/dollar volumes are supported by record numbers of deals and invested capital in technology companies (versus other industries), with deal volumes and invested capital decreasing during Q1 2022 for companies in the life sciences and other industry sectors. Deal volume in life sciences sector companies decreased by approximately 21% during the quarter, with a decrease in invested capital of approximately 56%. For companies in other sectors, the decrease in deal volume during the quarter was approximately 32%, with a decrease in invested capital of approximately 46%. These compare to an 8% increase in the deal volume for technology companies over the quarter, with an increase of almost 60% in invested capital for technology companies for the quarter.

For deals that closed in March 2022, median pre-money valuations increased for early to mid-stage deals, after the slight decrease seen in deals that closed in the month of December 2021 (as noted in our Q4 2021 report). The median pre-money valuations for disclosable Series Seed, Series A and Series B deals closing in the month of March 2022 were $21 million, $78 million and $285.2 million, respectively, up from $18.7 million, $51.8 million and $171.5 million, respectively, for those closing in the month of December 2021. However, compared to December 2021, median pre-money valuations for later-stage disclosable deals declined as of March 2022.

The median pre-money valuation for Series C disclosable deals was $528.7 million for transactions closing in March 2022, as compared to $567 million for those closing in December 2021, and the median pre-money valuation for Series D+ disclosable deals was $1.3 billion for transactions closing in March 2022, down from $1.9 billion for those closing in December 2021. Overall, the number of deals with large pre-money valuations remained high during the first quarter of 2022, and Cooley handled 175 disclosable deals with pre-money valuations greater than or equal to $100 million during Q1 2022 – nearly matching the record high of 177 such deals handled by Cooley during Q4 2021.

Deal terms in Q1 2022 continued to be favorable for companies. Nearly 98% of disclosable deals for the quarter had non-participating preferred, which was a record high. The percentage of “up” rounds remained high in Q1 2022 at 97% of disclosable deals, though this represents a slight dip from the 99% record high set in Q4 2021. The percentage of deals with a pay-to-play provision remained extremely low, at just 3% of disclosable deals, as did the percentage of deals with a recapitalization, which made up less than 1% of disclosable deals.

In PitchBook’s 2021 Annual Global League Tables, Cooley achieved the top spot globally and in the US for representation of companies in venture capital transactions. The firm also was credited as the second-most active law firm in the US and globally for our representation of investors in VC deals and in overall venture deal count.

Spotlight on life sciences

In Q1 2022, Cooley handled 68 disclosable financings of life sciences companies, representing more than $2.4 billion of invested capital, a notable drop from 82 disclosable deals with more than $5.2 billion in invested capital in the prior quarter. Disclosable deal sizes also declined, with an average deal size of $35.8 million in the quarter, versus $63.8 million in Q4 2021. The percentage of life sciences financings structured in tranches decreased to just over 16% of disclosable deals (from nearly 18% in Q4 2021). These percentages are high compared to percentages of tranched deals for earlier quarters in 2021, but low compared to Q3 and Q4 2020, where life science deals structured in tranches exceeded 20% of deals. To view more details on life sciences trends, use the “Life sciences” filter in our interactive data visualization tool.

Spotlight on technology

Deal volume and amount raised in Q1 2022 reached record numbers for technology company deals. During the quarter, Cooley handled 250 disclosable financings of technology companies, representing more than $18 billion of invested capital, far exceeding prior records (211 disclosable deals in Q4 2021 and $11.9 billion of invested capital in Q2 2021). Average disclosable deal size during the quarter increased to more than $73 million, compared to more than $66 million in Q4 2021. To view more details on technology deal trends, use the “Technology” filter in our interactive data visualization tool.

View the interactive visualization on Cooley GO

Key insights from Matt Sacks of Lightbank

On the future of the Midwest’s innovation ecosystem: “Over the past decade, the size of the venture capital industry has expanded at a remarkable pace. … We believe there is a tremendous opportunity to be a capital provider to the early-stage innovation ecosystem in the Midwest and help this market develop.”

On disruptive technology trends in the Midwest: “[W]e find that the Midwest ecosystem generates a significant number of exciting startups attempting to disrupt categories like steel manufacturing and commodities trading.”

On the growth of Chicago’s VC market: “To truly achieve scale, a startup ecosystem needs to nurture an appetite for risk and acceptance of failure, have great research institutions and strong engineering talent pools, have a series of successful prior-generation companies that created significant value for those involved, and importantly, have enough early-stage capital providers willing to embrace risk.”

Read the full interview on Cooley GO

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