Restive invests at pre-seed and seed in fintechs, and聽 provides operational expertise in the regulated industry. Among its founder-focused activities are an annual founder trip to Washington, D.C., to meet with regulators, and speed dating events with industry partners.

“If you raise a seed round in this climate, assume that it鈥檚 going to be very hard to raise an A,” according to the report.

Drawn from a survey of fintech seed investors, the report put average pre-seed valuations at around $9 million, while average seed values are now down around 50% 鈥� at $12 million. But the range is still wide. Tucked into this finding is that multiple seed rounds are perceived negatively by some investors. For these investors, raising further seed rounds instead of meeting milestones for a Series A suggests a startup is not reaching product market fit.听

More regulation

There is a shift in the regulatory environment from 鈥渋nnovation鈥� to 鈥渆nforcement,鈥� according to the report.听

We spoke with , a partner at the firm, on Restive鈥檚 findings around seed valuations, the increased interest in M&A, and the complex regulatory environment in 2023.

Regulators are moving from鈥減ushing innovation as an agenda item to wanting to ensure that there’s fair competition,鈥� said Peake. They are making sure that both 鈥渃ustomer protection and the ability for upstarts to play within broader spaces is protected.鈥澛�

A new focus is regulation around banking as a service.听

鈥淧roviding services to outside parties and the bank being the chartered institution just was never considered within the regulation,鈥� said Peake, as previously, regional banks had vendor relationships but were not supporting fintechs with consumers using its services.听

鈥淩egulators are posing hard questions about consumer data and are seeking to understand where risk actually lies in the three-way relationships among fintechs, BaaS providers, and the actual regulated bank,鈥� stated the report.

Partnering

One bright spot in the report is that major banks, insurance and traditional payment companies are keen to partner with fintechs, with 80% expecting partnerships to increase in 2023. And as the IPO market has narrowed and private valuations have come down, interest in acquisitions has increased. 鈥淎 lot of these outdated systems are just ripe for M&A,鈥� said Peake.听

Looking forward to 2023

The areas Peake is excited about in 2023 include financial infrastructure due to 鈥渙utdated infrastructure that exists across these legacy financial institutions,鈥� she said.听

More work needs to be done on compliance workflows around billing management, Peake said. One hot topic is digitizing payments for industries that have not yet migrated, such as payment solutions for school districts and their vendors.听

Illustration:

In total, investors put $36.1 billion to work across all stages in Q4, per 附近上门 data. That鈥檚 a whopping 63% decline from a year ago (a remarkably bubbly time for startup funding) and a 10% drop from third-quarter 2022.

Declines were sharpest at the late stage, as the shuttered IPO market and shrinking tech valuations muted investor appetite for large follow-on rounds. However, funding was down both year over year and quarter over quarter at every stage.听

For perspective, we lay out funding by stage over the past 12 quarters below:

Even with dealmaking down, there were some sizable rounds and exits that did get done in Q4. For the full year, meanwhile, 鈥檚 record-setting $20 billion acquisition proved high valuations can persist. Overall, however, both funding and exit numbers point to a down market.

For more detail, below we break things out by stage, as well as highlight top M&A deals and public market debuts.

Late stage

We鈥檒l start at late stage, which remains the largest area for funding, albeit by a smaller lead than in past quarters.

For Q4, late-stage and technology growth investment totaled $18.7 billion. That鈥檚 a decline of聽 67% from the same period a year earlier and a drop of 3% from Q3. It鈥檚 also the lowest total of the past five quarters, as illustrated by the chart below:

Round counts also declined in Q4, with 272 disclosed late-stage and tech growth deals, the lowest total in at least five quarters.

Still, big investments did get done. One standout was , the defense industry technology developer, which landed $1.5 billion in a December Series E round. Other large deals included a $450 million Series E for , a developer of iron-air batteries, and a $330 million Series E for , a provider of mobile and virtual health care.

The Q4 totals top off what has been a downward-trending year. For all of 2022, investment in late-stage and tech growth rounds totalled $124.6 billion. That鈥檚 a 43% decline from 2021, when $217.8 billion went into such deals.

Early stage

Early stage is also down.听

For the fourth quarter, $14.4 billion went into early-stage rounds (Series A and B), a 59% decline from year-earlier levels and a 16% drop from Q3 tallies. It was also the lowest total of the past five quarters, as illustrated by the chart below:

Deal counts contracted as well, hitting the lowest quarterly level in more than two years, per 附近上门 data.听

Even so, we did see a number of large early-stage deals. , a precision medicine startup, pulled in $261 million in an October Series A round. Other big Q4 round recipients were biopharma startup , with $168 million in Series A funding, and decentralized finance upstart , with $165 million in Series B financing.

Early-stage financing was also down for the full year, with $84 billion in total investment in 2022, down from $117.9 billion in 2021.

Seed stage

North American investors also pulled back at the seed stage.听

For Q4, seed, pre-seed and angel investment totalled $3 billion. That鈥檚 down 37% year over year and a drop of 18% from the prior quarter.

Below, we look at how the just-ended quarter stacks up relative to the past five:

In some ways, the recent seed-stage decline is harder to explain than the drops we鈥檙e seeing at late stage. At this most nascent stage of startup development, investors aren鈥檛 really concerned about the current state of the IPO and M&A markets, as a potential exit is years away.听

Nonetheless, seed investors do care about whether there鈥檚 a steady supply of Series A capital to fund the next phase of growth. So, from this perspective, the decline in early-stage investment could be a catalyst for lower seed funding.

Notably, quarterly seed funding totals actually hit their all-time peak in Q1 of 2022, boosted by some big Web3-related rounds. That pushed total seed funding for 2022 to $17 billion, which is actually up about 4% from 2021.

M&A

Acquisition activity slowed in Q4, with no purchases that came close in size to Adobe鈥檚 jaw-dropping Figma deal the prior quarter.

The largest announced deal involving a private, venture-backed company was 鈥檚 $1.46 billion acquisition of , a cloud-based platform for managing the lifecycle of assets and equipment. At the time of purchase, however, ServiceMax was 15 years old and majority-owned by private equity firm .

Several younger startups sold for smaller sums, including , a car repair and maintenance platform being acquired by for $190 million, and , a hardware and software system for data centers, which sold to , also for $190 million.

For more deals, we put together a list of the top seven venture-backed M&A transactions below:

Public offerings

The new offerings market was quiet in Q4, but a few funded companies still made it to market.

One standout was , a car-sharing marketplace that went public via SPAC in December, wrapping up a merger deal that set an initial valuation for the company of $1.2 billion. Shares have fallen steeply since.

Meanwhile, , a startup focused on gene editing, made its debut in October, with shares actually up a bit from the initial price. Several other biotechs also went public, though offerings were on the smaller side. We aggregated a list of seven Q4 offerings, across all sectors, below:

Down is a relative term

While funding was down year over year in 2022, it was still a strong year by historical standards.

Per 附近上门 data, last year actually had the second-highest total funding in the past 10 years. It鈥檚 only in comparison to the rollicking 2021 investment climate that things are looking sharply down.

For perspective, below we chart venture dollar volumes by stage since 2013:

Of course, it鈥檚 worth keeping in mind that 2022 started on a stronger note than it finished, with Q4 showing the lowest funding by a wide margin. So, if the pattern continues, it appears likely that we鈥檝e still got further down to go.

Methodology

The data contained in this report comes directly from 附近上门, and is based on reported data. Data reported is as of Jan. 4, 2023.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. 附近上门 converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to 附近上门 long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

Seed and angel consists of seed, pre-seed and angel rounds. 附近上门 also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early stage consists of Series A and Series B rounds, as well as other round types. 附近上门 includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late stage consists of Series C, Series D, Series E and later-lettered venture rounds following the 鈥淪eries [Letter]鈥� naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a 鈥渧enture鈥� round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman

Their value declined from $2.8 trillion in September 2021 to $1.2 trillion in September 2022, a drop of 57%. The average forward revenue multiple trended down from 17x to 6x in that timeframe. And average forward growth rate declined from 26% to 21%, a slowdown of around 20% in the growth rate.听

We spoke with , a partner at Accel based in their London office, on the latest report.听

鈥淚t’s not that suddenly all the growth has disappeared,鈥� said Botteri of the 122 public cloud companies it analyzed. 鈥淭he growth has slowed down a bit, but the multiples have been compressed a lot more than the growth has been impacted.鈥�

Since the introduction of the cloud 15 years ago, around 40% of workloads have moved to the cloud and that share is projected to grow to 51% in 2025, according to the report.听

鈥淚f you follow the trend lines, we could have overcorrected,鈥� said Botteri of the drop in value of public cloud stocks. Which is not to say it can鈥檛 drop further, but rather the growth trajectory for cloud SaaS businesses is still promising over the longer term.

M&A opportunities

Meanwhile, M&A activity for technology companies taken private has increased and valued these companies on average at higher multiples by 9x revenue and at a 33% premium compared to the current stock price, according to the report.

Companies that have been taken private include and by , by and by .听

Between private equity and public cloud companies, Accel estimates $330 billion from private equity and $440 billion from public strategics totaling $770 billion in dry powder for M&A transactions.听

Private cloud companies

The impact of this decline for private SaaS unicorn companies is that valuations are now closer to 10x average revenue.听

Since January 2020, around 122 European and Israeli unicorn-valued cloud companies have raised a total of $44 billion, a huge volume of funding concentrated in a small number of companies.听

The impact of all this funding means 鈥渢hey don’t need to raise right now,鈥� said Botteri. 鈥淭hey need to digest that money鈥� to invest and grow.听聽

Over 50% of these SaaS unicorn companies have more than $100 million in ARR.听

These companies are more likely to raise flat rounds rather than up rounds when they do so in the coming years, the report predicts, based on these revised valuation metrics and revenue projections.

The next Euro cloud 100

Highlighted in Euroscape 2022 are 100 cloud companies from Europe and Israel that are not yet unicorns, have more than $1 million in annual recurring revenue and are companies to watch.听

滨濒濒耻蝉迟谤补迟颈辞苍:听