Cooley handled 298 disclosable venture capital financings for Q3 2022, representing $8.1 billion of invested capital, continuing a downward trend for both metrics and representing the lowest for both since Q4 2019. In Q2 2022, we reported 332 disclosable VC financings with invested capital of $16.6 billion, and in Q1 2022, we reported 401 disclosable VC financings with invested capital of $24.3 billion.
We have witnessed the downward trend in amounts raised during 2022 across all stages of financing, but it is most pronounced in later-stage deals (Series C and later). For example, Series D and later deals have seen a 78% drop in amount raised during 2022, dropping from $10.5 billion in Q4 2021 to just $2.3 billion in Q3 2022. The amount raised in Series C deals dropped more than 64%, from $3 billion in Q4 2021 to $1.1 billion in Q3 2022. The drop from Q4 2021 to Q3 2022 was nearly 61% for Series B deals (from $5.3 billion to $2.1 billion), 50% for Series A deals (from $3.5 billion to $1.8 billion) and only 9% for seed deals (from $932 million to $849 million). These declines in amounts raised are consistent with trends seen in the broader market. The more significant drops in later-stage deals compared to early-stage deals is expected, given longer time horizons to exits in early-stage deals, leading to more stability for investors.
Median pre-money valuations also declined during Q3 2022 at all levels of financing, with the largest decrease occurring in later-stage deals. The median pre-money valuation for Series D or later deals dropped from a record high of $3.5 billion in May 2022 to just $527 million in September 2022, the lowest median pre-money valuation seen for Series D or later deals since May 2020. For Series C deals, median pre-money valuations dropped from $502 million in June 2022 to $130 million in September 2022, the lowest since August 2020. The median pre-money valuation for Series B deals dropped from $164 million in June 2022 to $90 million in September 2022, the lowest seen since May 2020.
The decline in median pre-money valuation was less significant for Series A and seed deals, again likely reflecting more stability in early-stage deals due to longer time horizons for exits. The median pre-money valuation for Series A deals dropped from $58 million in June 2022 to $45 million in September 2022, the lowest seen since July 2021. For seed deals, the median pre-money valuation decreased slightly over Q3 from $18.6 million in June 2022 to $17.6 million in September 2022. The average pre-money valuation for seed deals has remained relatively consistent since late 2021.
Even though invested dollars, deal volume and valuations were generally down, Q3 2022 deal terms themselves continued to be generally favorable for companies. In Q3 2022, 95% of disclosable deals had non-participating preferred stock, down just slightly from the 97% reported for Q2 2022. While still at a high 87% of deals for Q3 2022, the percentage of “up” rounds declined from 94% in Q2 2022 and is at the lowest level since Q3 2020, where 80% of deals were “up” rounds. The percentage of deals with a pay-to-play provision remained low, at just 4.4% of disclosable deals, up slightly from numbers earlier in 2022 and 2021. Similarly, the percentage of deals involving a recapitalization also remained low at 1.3%, reflecting a small increase since early 2022 and all of 2021, where deals with a recapitalization made up less than 1% of disclosable deals.
In PitchBook’s Q2 2022 Global League Tables, Cooley was ranked as the #1 law firm in the US for overall venture deal count. Cooley also continued to hold the top spot globally and in the US for representation of companies in venture capital transactions. The firm was credited as the second-most active law firm in the US and globally for representation of investors in VC deals and globally for overall venture deal count.
Spotlight on technology
Deal volume and invested capital for technology company venture financings continued to decline in Q3 2022. During the quarter, Cooley handled 182 disclosable financings of technology companies, representing more than $4.7 billion of invested capital. This is the lowest deal volume for technology companies since Q3 2020, when Cooley handled 165 disclosable deals, and the lowest amount raised since Q1 2020, when Cooley handled 168 disclosable deals representing more than $3.7 billion of invested capital. Average disclosable deal size during the quarter for financings of technology companies decreased to just over $26 million in Q3 2022, compared to more than $57 million in Q2 2022.
Spotlight on life sciences
Deal volume and invested capital for financings of life sciences companies also continued to decline in Q3 2022. During the quarter, Cooley handled 51 disclosable financings of life sciences companies, representing more than $1.5 billion of invested capital. This is down slightly from 53 disclosable deals for life sciences companies, representing more than $2.4 billion of invested capital in Q2 2022. Disclosable deal sizes for financings of life sciences companies also decreased to an average deal size of more than $31 million in the quarter, as compared to an average deal size of more than $46 million in Q2 2022 and well below the averages seen throughout 2021. The percentage of life sciences financings structured in tranches increased to 20% of disclosable deals (from 19% in Q2 2022). These percentages are high compared to the percentages of tranched deals for earlier in 2022 and all quarters in 2021, but low compared to Q3 and Q4 2020, where life sciences deals structured in tranches exceeded 20% of deals.
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Key insights from Sunil Dhaliwal of Amplify Partners
On the outlook of the private market: “Private markets activity typically trails the activity of the public markets by about six months, so it’s reasonable to think that we will continue to see both a slowdown in activity and a pullback in valuations continuing for the two quarters.”
On Amplify’s relationship with its portfolio companies: “The most notable change at Amplify over the past three years has been our continued investment in our Build Team. … [A]s a result, we are in a better position to support those companies with both solutions for business problems and capital for growth.”
On the impact of AI on other industries: “For the longest time, most AI impact has been focused on things that live within a computer. … We remain incredibly excited about how AI will impact the physical world.”
Read the full interview on Cooley GO