Q2 2022 Venture Financing Report – Deal Volume, Invested Capital and Early-Stage Pre‑Money Valuations Decline

July 28, 2022

Cooley handled 332 disclosable venture capital financing deals for Q2 2022, representing $16.6 billion of invested capital. Both numbers are down from Q1 2022, when Cooley handled 401 disclosable VC financing deals with invested capital of $24.3 billion. The invested capital in VC financing deals for Q2 2022 is at its lowest since Q4 2020, when Cooley handled 353 disclosable deals representing $14.3 billion in invested capital, while deal volume is at its lowest since Q3 2020, when Cooley handled 308 disclosable VC financing deals. Though consistent with generally reported market dynamics, the slowdown in deal volume and invested capital is something to watch during the second half of 2022 to see if the trend continues.

In early-stage VC financing deals, median pre-money valuations also declined somewhat, returning to levels comparable to valuations from the later part of 2021, but still high compared to valuations from early 2021. Series Seed deals had a median pre-money valuation of $17.1 million, with Series A deals at $60 million, in June 2022. Although slightly down from highs in late 2021 and early 2022, these medians remain elevated compared to numbers from the first half of 2021. Series B deals saw a slightly greater decline in median pre-money valuations during Q2 2022, dropping from a record high median pre-money valuation of $300 million in January 2022 to $164.4 million in June 2022; however, the June 2022 median pre-money valuation for Series B deals is still above those seen in early 2021, which were in the range of $150 million. Even in the current climate, median pre-money valuations in later-stage VC financings increased after the decline in Q1 2022, with June 2022 boasting a record high median pre-money valuation of $4.3 billion for Series D or later deals.

Although invested dollars, deal numbers and valuations were generally down, Q2 2022 deal terms themselves continued to be favorable for companies. In Q2 2022, 97% of disclosable deals had non-participating preferred stock, down slightly from the record high of nearly 98% for Q1 2022. The percentage of “up” rounds remained high at 94% of disclosable deals, again slightly down from 97% in Q1 2022. Deals with a pay-to-play provision remained low at just 4.5% of disclosable deals, though this does represent an increase over 3% of disclosable deals in Q1 2022. Similarly, the percentage of deals involving a recapitalization also remained low at 1.5%, but this is an increase over Q1 2022, when deals with a recapitalization made up less than 1% of disclosable deals.

Cooley continued to hold the top spot globally and in the US for representation of companies in venture capital transactions in PitchBook’s Q1 2022 Global League Tables. The firm also was credited as the second-most active law firm in the US and worldwide for representation of investors in VC deals and in overall venture deal count.

Spotlight on life sciences

Deal volume and invested capital for financings of life sciences companies continued to decline in Q2 2022. During the quarter, Cooley handled 52 disclosable financings of life sciences companies, representing more than $2.2 billion of invested capital. This is down from 70 disclosable deals representing more than $2.4 billion of invested capital in Q1 2022 – and is a notable drop from 86 disclosable deals with more than $5.4 billion in invested capital in Q4 2021. Disclosable deal sizes for financings of life sciences companies increased slightly to an average deal size of more than $44 million in the quarter – as compared to an average deal size of more than $34.8 million in Q1 2022 – but are still well below the average of more than $63.8 million from Q4 2021. The percentage of life sciences financings structured in tranches increased to just over 19% of disclosable deals (from just over 17% in Q1 2022). These percentages are high compared to the percentages of tranched deals for earlier quarters in 2021, but are low compared to Q3 and Q4 2020, when life sciences deals structured in tranches exceeded 20% of deals.

Spotlight on technology

After reaching record numbers during Q1 2022, deal volume and invested capital both declined in Q2 2022 for technology company deals. During the quarter, Cooley handled 203 disclosable financings of tech companies, representing more than $11.5 billion of invested capital. This is the lowest deal volume and amount raised for technology company financings since Q3 2021, when Cooley handled 201 disclosable financings of tech companies representing more than $10.1 billion of invested capital. Average disclosable deal size during the quarter for technology company financings decreased to more than $56 million, compared to more than $72 million in Q1 2022.

View the interactive visualization on Cooley GO

This content is provided for general informational purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Cooley LLP, Cooley (UK) LLP, or any other affiliated practice or entity (collectively referred to as “Cooley”). By accessing this content, you agree that the information provided does not constitute legal or other professional advice. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. This content may be considered Attorney Advertising and is subject to our legal notices.