Midyear report shows 'desperation' in venture capital markets

If you’ve got an AI startup, the money is in the bank

What you probably already know: It’s been rough out there for anyone trying to raise venture capital funds. The market has been very slow for more than 18 months and doesn’t seem to be warming up. That’s driven, in part, by the slow M&A and IPO market. There have been only 22 IPOs this year, compared to the record high of 1,035 in 2021, according to Pitchbook’s midyear report. The same report says there’s a “higher degree of desperation from the market” as venture-backed companies seek exits to continue to grow. Artificial intelligence companies are among the only bright spot.

Why? Interest rates, inflation and a slow economy are mostly to blame, though, as Pitchbook states, “venture market resets take time” and cautions that the full impact of the slowdown may still be ahead.

What it means: Basically, without big exits, money remains trapped in the companies where it’s invested, and venture capital firms can’t recapture funds to make their next investments. Add to that a perception that startup valuations were inflated a few years ago, and investors have been slow to make the kinds of bets they were making even two years ago.

What happens now? Investors put $27.1 billion into AI startups between April and June, which accounts for about half of all startup funding in that period, according to the New York Times. That’s the only industry where there seems to be growth akin to 2021 and where investors seem primed to put what little money they have.

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