Austin startups raised $701 million in venture capital in the third quarter of 2022, 30 percent less than the same quarter a year ago, according to the latest Pitchbook-National Venture Capital Association Venture Monitor report.

It’s also a nearly 18 percent decline from the $850 million Austin startups raised in the second quarter of this year.

The number of deals funded in the Austin Round Rock metropolitan area also dropped to 70, down 32 percent from 103 deals in the third quarter of 2021.

To date, Austin startups have raised $4 billion in the first three quarters of 2022, compared to $2.4 billion for the same period in 2021.

The top deal financed in the third quarter was $145 million to Founderpath, which helps SaaS founders get funding without having to raise equity. The second largest deal was MicroTransponder, a medical device company that makes neurostimulation devices to treat neurological diseases, which received $73 million in funding, followed by Happy Health, which created a ring to monitor mood and stress, which received $60 million.

Overall, in Texas, startups raised nearly $1.4 billion in the third quarter of 2022, a 33 percent decrease compared to startups raising $2.1 billion for the same quarter in 2021. The number of deals dropped 35 percent to 145 deals in the third quarter of 2022, compared to 223 for the same quarter a year ago.

Overall, U.S. venture capital deal activity in the first three quarters of 2022 was showing signs of stress in response to economic headwinds, according to the Q3 PitchBook NVCA Venture Monitor, the report jointly produced by PitchBook and the National Venture Capital Association (NVCA) with support from Insperity and J.P. Morgan.

“Deal counts fell across all stages for the second consecutive quarter after reaching a record high in Q1 2022 and total money invested reached a nine-quarter low, cementing a tone of investor hesitancy and increased focus on business fundamentals,” according to the report. “This pullback was especially pronounced at the late stage, where nontraditional investors – the largest drivers of mega deals and the overall growth seen at the top of the market – slowed investment in VC-backed startups. Aside from several outsized deals in Q3, annual exit activity has also been lethargic, with 2022’s exit value on pace to fall below $100 billion for the first time since 2016.”

Despite that, VC fundraising has already reached a new annual record in the first three quarters of the year, according to the report.

“The VC slowdown narrative that has been pervasive in the market this year has finally materialized in the data, with nearly every metric aside from fundraising falling sharply in Q3,”  John Gabbert, founder and CEO of PitchBook, said in a news statement. “The VC ecosystem, however, has shown remarkable resiliency in the face of continued economic headwinds, raising record levels of capital and closing an unexpectedly high number of deals. In many ways, 2021 was an outlier year, and the VC market is now returning to pre-pandemic levels and long-term trends of steady growth.”

HIGHLIGHTS from the Report:

Investment Activity

  • VC investment totaled just $43 billion across an estimated 4,074 deals in Q3 2022, a nine-quarter low for deal value. Estimated deal counts have fallen nearly 20 percent from the quarterly high in Q1 2022 – the lowest count since Q4 2020.
  • Aside from corporate VC (CVC) investors, nontraditional investor participation fell faster than the broader venture market in 2022. PE firms have participated in just 48.3 percent of deal value in 2022 and asset managers just 34.9 percent compared to 58.5 percent and 43.6 percent in 2021, respectively. Meanwhile, CVCs have participated in 25.6 percent of VC deals year-to-date, as well as nearly 45.3 percent of deal value; both figures are in line with past yearly highs.
  • Total dollars invested in late-stage VC decreased by 48.3 percent from the Q2 figure of $48.1 billion and set a record eleven-quarter low. The median late-stage deal size in Q3, $10.0 million, decreased by a third from the 2021 full-year figure of $15 million.

Fundraising Activity

  • US VC fundraising reached a new annual high of $150.9 billion in Q3, surpassing last year’s previous record and taking the 21-month fundraising total above $298.1 billion. We are beginning to see momentum atrophy, however, with just $29.4 billion in fundraising added to the dataset since our Q2 report, the lowest quarterly total this year.
  • In 2022, 79 percent of the record fundraising has gone to funds led by established managers. Emerging managers suffer disproportionately during economic downturns, as LPs are less likely to increase their VC allocations and commit to GPs with limited or no historical track records.
  • Nearly 2,600 VC funds have been closed since the beginning of 2020, with the majority of these still within their new investment period. That is roughly the same number the US market saw closed from 2006 through 2015.

Exit Activity

  • With just $14 billion in exit value generated across an estimated 302 exits in Q3, this year’s total exit value is in danger of falling below $100 billion for the first time since 2016.
  • 2022 has produced only 59 public listings, just one year after a record 303 VC-backed public listings generated $670 billion in exit value. The frozen IPO market continued in Q3, with just five companies exiting via traditional IPOs this quarter.
  • SPACs – once pervasive in the market – have all but disappeared, with only three SPACs completing listing this quarter, a far cry from the peak of 281 listings in Q1 2021. Many of the remaining SPACs that have yet to complete acquisitions are nearing their two-year time limit, at which point shareholders can opt to have their investment returned.

Top 10 V.C. Deals for Austin in the 3rd Quarter

  1. Founderpath                  Commercial Banks      $145 million
  2. MicroTransponder.       Software                       $73 million
  3. Happy Health                Healthcare                    $60 million
  4. Form Bio                       Healthcare                    $30 million
  5. CrowdStreet                  Software                       $28 million
  6. FeatureBase                   Software                       $28 million
  7. Spruce                           Commercial Services     $26 million
  8. INK Games                   Software                         $19 million
  9. Zippy                             Software.                        $16 million
  10. Theori                            Commercial Services     $15 million

Source: Pitchbook-National Venture Capital Association Venture Monitor data.