# State of Private Markets

## Q2 2022

Venture capital is in a slowdown, but not a freefall. For the past two quarters, the number of rounds and the amount of cash raised on the Carta platform both declined, deepening the downturn in venture investment. However, the decline in Q2 wasn't as steep as it was in Q1. Whereas Q1 saw a 27% drop in the number of rounds and a 36% decline in cash from the previous quarter, the Q2 declines were 13% and 29%, respectively. As companies continue to document their second-quarter deals on Carta, revised data will likely show slightly smaller Q2 declines.

While venture activity in the first half of 2022 was slower than it was last year, it's on pace to exceed annual totals in 2020 and earlier years.

## Q2 highlights

### Series D saw the steepest drop in total cash
Cash going to Series D rounds dropped by 48% from Q1 to Q2, while Series C saw a drop of just 4%.

### Bridge rounds became more common at later stages
As companies navigate market conditions that remain unfavorable for IPOs and late-stage valuations, bridge rounds became nearly three times as common at Series E and beyond, comprising 22% of rounds in Q2 2022 versus 8% in Q1.

### Layoffs increased as voluntary employee departures declined
In both May and June, the number of employees who lost their jobs increased over the previous month, while the number of employees who chose to leave their jobs decreased, driving the percentage of employee terminations that were involuntary up to 37% in June.

These trends come as the U.S. stock market posted its worst first six months since 1970, with the tech-heavy NASDAQ composite dropping some 30%. Meanwhile, the Federal Reserve repeatedly raised interest rates to tame inflation, which reached a high of 9.1% in June. The higher cost of capital and decline in consumer spending power generated economic doubts that continue to register in the private markets.

## Cash raised by stage

Q1’s relative shift in cash away from later stages continued in Q2, which saw a smaller percentage of cash going to rounds at Series D and above than in any quarter since Q1 2020.

Seed, Series A, and Series C rounds each took larger pieces of a smaller pie in Q2, with the $28B in total cash recorded on Carta for Q2 down by 29% quarter over quarter (QoQ). The number of rounds decreased at every stage except Series C, which posted a QoQ increase of 9% in Q2.

Series C rounds also saw the smallest drop in total cash in Q2, raising just 4% less than in Q1. However, the percentage of cash that went to all late-stage (Series C and beyond) rounds taken together only changed from 46% in Q1 to 47% in Q2.

## Cash raised by industry

SaaS has outpaced health and biotech in all four quarters since Q3 2021, solidifying its return to pre-pandemic levels of relative funding. Although every industry saw a drop in total dollars raised in H1 2022 over the previous half, one industry—data and security—was still up slightly on a year-over-year (YoY) basis from $5.49B in H1 2021 to $5.73B in H1 2022. H1’s declines were not large enough to wipe out large H2 2021 increases in cash and rounds for data analytics and cybersecurity, this industry’s two largest segments.

Perhaps due to expectations of dampened household buying power due to inflation or a possible wider economic slowdown, funding for consumer startups has fallen 76% since Q4 2021. Of the $4.3B this sector attracted in the first half of 2022, only $1.2B was in Q2. Funding for adtech and marketplace startups plummeted in H1 2022 to $4.8B, down from $10.2B in H2 2021, another sign that investors believe last year's bump in consumer spending might not last.

Hardware and logistics saw the smallest drop in H1, down just 5% from H2 2021 to $11.0B.

## Funding for adtech and consumer startups drops sharply

Total amounts raised in seed through Series E+

| $12B | $11B | $11B | $16B | $24B | $31B | $16B | 704 SaaS |
| --- | --- | --- | --- | --- | --- | --- | --- |
| $8B | $8B | $8B | $12B | $24B | $23B | $14B | 541 Health & biotech |
| $7B | $6B | $3B | $8B | $14B | $14B | $11B | 345 Hardware & logistics |
| $3B | $4B | $3B | $7B | $11B | $12B | $8B | 296 FinTech |
| $3B | $3B | $3B | $4B | $7B | $10B | $6B | 252 Data & security |
| $3B | $3B | $2B | $4B | $7B | $9B | $5B | 242 Adtech & marketplace |
| $2B | $2B | $2B | $4B | $5B | $9B | $4B | 269 Consumer |
| H1 2019 | H2 2019 | H1 2020 | H2 2020 | H1 2021 | H2 2021 | H1 2022 | # deals H1 |

## Deals by state

### Northeast was hit hard by H1 2022 drops in cash

Percentage of total cash raised in H1 2022 by location of company headquarters, and change over 2021 in percentage points.

Fundraising levels have declined across the United States from a record-breaking 2021. On an annualized basis (comparing cash raised in 2021 to double the totals for H1 2022) 40 states are down in cash in 2022. Over H1 2022, the Northeast and Midwest seem to have fared worse than other regions. New York, Massachusetts, and Michigan each saw a drop of one percentage point in the relative amount of cash that companies in their states received, compared with 2021 totals. Meanwhile, Delaware, Colorado, and Florida—home to burgeoning tech and venture hubs in Boulder and Miami—each saw increases of half a percentage point or more.

No state is on track to be up by $500M or more in all of 2022 compared with 2021, whereas 14 states are down by that amount. Comparing 2022 to 2020, 14 states are on track to be up by $500M or more and only two states are down by that much.

Although markets have shifted, cash is still flowing, buoyed by record amounts of dry powder amassed by VCs.

## 409A valuations

In Q2, 16% of 409A valuations provided by Carta had a valuation decrease, up from 11% in Q1. Among all other quarters in this dataset (which goes back to 2015), only the first two quarters of 2020, at the height of pandemic uncertainty, saw a greater percentage of decreasing valuations than Q2 2022.

### Rounds and valuations by stage

## Early-stage raises

Median round size by stage and quarter

Series B median round sizes declined 21% QoQ in Q2 to $20.4M, after a 12% drop the previous quarter. Still, Series B rounds were slightly larger than in the years prior to 2021.

The median valuation for Series A dipped by 13% in Q2, while the median seed valuation reached $3.3M—up 20% QoQ and 27% YoY. Early-stage rounds have remained more insulated from public market turmoil, a signal that investors remain optimistic about the longer term.

## Late-stage raises

Median round sizes are down at all late stages, both QoQ and YoY. In H2 2021, Series D saw a number of large rounds ($200M+), which have all but disappeared by Q2 2022. In H2 2021, 16% of rounds were $200M or larger, and by Q2 2022 this dropped to 4%. In H2 2021, these larger Series D rounds pushed the mean round size to $127M, nearly 50% higher than the median, as compared with a mean in Q2 2022 of $63M, just under 30% higher than the median.

Round data for later stages is noisier, largely because with fewer companies raising rounds at later stages, the datasets are smaller. Whereas Series C has seen over 100 rounds per quarter since Q4 2020, Series D has seen 40-80 rounds, and Series E+ has seen 30-65. Later-stage rounds also encompass greater diversity in company age, size, and trajectory than earlier-stage rounds.

## Late-stage post-money valuations

Median valuations for Series C and D rounds were down on a QoQ and YoY basis. They were, however, higher than at any point prior to 2021.

At Series E and beyond, the median valuation jumped by 21% QoQ to $1.65B, a YoY uptick of 25%. This group includes companies with a wide range of ages and sizes, with 50-70% typically being Series E rounds and the rest at Series F, G, and H. Series E+ also makes up just over 2% of all rounds since 2019. This smaller number of rounds from a diverse group contributes to the greater noisiness in Series E median metrics versus other series.

The uptick in Q2 2022 median valuations at Series E and above may be due to a greater number of raises by mature companies that in other markets might have held an IPO.

## Early-stage post-money valuations

Series A and B valuations dropped in Q2, but are still up YoY

Median valuations are still up YoY at all early stage rounds, even though Series A and B took a dip in Q2 2022. Series B valuations in Q2 were down 19% from a peak of $190M in Q1, but were still higher than in any quarter on record prior to Q4 2021. Series A saw a smaller Q2 dip than Series B, and is up 18% YoY.

Seed round median valuations increased by 11% in Q2, continuing a steady trajectory of growth. Since 2019, seed round median valuations have only dipped in three quarters, and never by more than 4%.

## Late-stage raises versus valuations

Late-stage round sizes and valuations have pulled back

Among late-stage rounds, both raise amounts and post-money valuations were down in H1 2022, relative to 2021, but still above 2020 levels.

## Dilution

Dilution—or the percentage of a company’s equity that is sold in a round—is calculated by dividing the raised amount by the post-money valuation. The median dilution in a round dropped at most stages in Q2 2022. The exceptions were Series D and seed, which both saw slight increases for median dilutions in Q2.

## Bridge rounds

Late-stage companies turned to bridge rounds in Q2

Bridge rounds are an interim, typically smaller, and usually unpriced financing round meant to extend a company’s runway until it is ready for its next priced round or an IPO. The percentage of financing rounds that are bridge rounds jumped for later-stage companies in Q2 2022.

## SAFEs and convertible notes

Unpriced rounds, which include both Simple Agreements for Future Equity (SAFEs) and convertible notes, allow a startup to receive an investment without negotiating a valuation. Both pre-seed and post-seed companies have shifted since 2019 toward a preference for SAFEs—which don’t have an interest rate, as they’re not a debt instrument—over convertible notes, which do. The preference is much more marked among pre-seed companies, with 83% of these choosing SAFEs in Q2 2022, as compared with 51% among companies with previous priced fundraising. The number of unpriced rounds recorded on Carta has remained robust in H1 2022: If the same pace continues in H2, the number of unpriced rounds in 2022 will be just 10% below the 2021 total.

## Employees and liquidity

### Startup employee departures

Startups let go of more employees in Q2. The percentage of employee departures that were involuntary ticked upward in June to 37%, bringing Q2 to an overall percentage of 30%, compared with 25% in Q1.

In both May and June, the total number of employees who lost their jobs at companies in our dataset increased over the previous month while the count of employee-initiated departures decreased.

### Employee options exercised

In Q2, the percentage of vested options that employees chose to exercise dropped for the second quarter in a row, but was still higher than from Q1 2019 to Q1 2021. The trend of fewer options having an extended post-termination exercise (PTE) period reversed in Q2, with a small uptick to 13%.

## Mergers and acquisitions

Merger and acquisition activity shifts towards mid-market. The overall number of companies on Carta to merge with or be acquired by another company per quarter increased slightly from 2021 to 2022.

### Tender Offers

Shareholders are increasingly looking for liquidity. In Q2, both the seller participation rate and subscription rates reached new highs, reflecting pressure on companies to meet employee and early investor thirst for liquidity.

## Methodology

Carta helps more than 30,000 primarily venture-backed companies and 2,000,000 security holders manage over $2.5 trillion in equity. The data presented in this private markets report represents a snapshot as of August 9-10, 2022. Historical data may change in future studies.