As the CEO of Wealth Stack, I am deeply committed to supporting veteran CEOs in navigating the complexities of financing your business. The current state of the VC market in the United States is a cause for concern for many entrepreneurs, and veteran CEOs are no exception. In this blog post, I will discuss the recent downturn in the venture capital market and what it means for veteran CEOs across America.
The first quarter of 2023 has been a difficult one for the US venture capital market, with the collapse of Silicon Valley Bank being just one of the contributing factors. Exit values have plummeted, generating a mere $5.8 billion, which is only 2.2% of the quarterly high from the past two years and the lowest since the global financial crisis.
Dealmaking has suffered as well, with deal values falling by more than 60% from their peak in Q4 2021. The $37 billion total in the last quarter also includes Stripe's massive $6.5 billion round, which wasn't even raised for the company's growth.
While 2022 saw fundraising as the bright spot in the industry, setting an annual record, this is no longer the case. A mere $11.7 billion was raised in Q1 2023, setting the year on a trajectory towards the lowest annual total since 2017.
The significant drop in VC exits has placed enormous strain on the market. While it's tempting to attribute the venture industry's struggles to the collapse of Silicon Valley Bank, the reality is that the market's compression was already well underway before this event and was, in fact, a contributing factor to the bank's failure.
Fortunately, we have not yet seen large-scale company bankruptcies or a significant increase in down rounds. However, the operative word here is "yet." If Q1 2023 is an accurate indicator of what the year holds for the VC market, VC-backed companies seeking to raise capital will face a formidable landscape. Investor caution has led to high benchmarks for raising funds, and even companies that have continued to grow may struggle to raise capital at the multiples they had hoped for. This will lead to smaller valuation step-ups and increased dilution relative to previous funding rounds.
It's essential to recognize that a reset in the venture market was necessary. The $346 billion in deal value and $768 billion in exit value recorded in 2021 were unsustainable. However, the rapid and steep contraction has left numerous companies vulnerable, particularly those in the late-stage and venture growth sectors. These areas of the market have become heavily reliant on crossover investors and a fast-moving IPO market.
As veteran CEOs in America, it's crucial to adapt to this challenging environment and find innovative ways to access capital for your business. While the VC market is currently in a state of flux, it's essential to remain proactive in seeking alternative funding sources and opportunities. Consider exploring private credit, hedge funds, and other alternative lenders as viable options for raising capital.
At Wealth Stack, we remain committed to helping veteran CEOs navigate this complex landscape by providing strategic advice and access to resources, including webinars on the latest trends and developments in the world of finance. It's essential for veteran CEOs to stay informed, be resilient, and collaborate with experienced advisors to overcome the current challenges in the VC market.
In conclusion, the current state of the VC market is undoubtedly challenging for veteran CEOs across America. However, with determination, adaptability, and the right guidance, veteran-led companies can still find success and growth in this uncertain landscape. Let's work together to overcome these challenges and continue to build a brighter future for veteran entrepreneurs.