Cooley handled 269 reported venture capital financings for Q4 2022, representing $6.1 billion of invested capital. This is the lowest deal count since Q4 2019 and the lowest invested capital since Q1 2019. By comparison, in Q4 2021, we handled 428 reported VC financings with invested capital of $23.2 billion (a record high for deal count and near-record high for invested capital). Both deal count and invested capital have declined over the past three quarters, consistent with trends seen in the broader market.
We have witnessed the downward trend in amounts raised during 2022 across all stages of financing, but the decline is most significant in mid- to late-stage deals. Series D and later deals have seen a 78% drop, from $10.5 billion in Q4 2021 to just $2.3 billion in Q4 2022. The drop in amount raised in Series C deals was even more significant at just over 87%, from $3 billion in Q4 2021 to $377 million in Q4 2022. The 2022 drop was nearly 74% for Series B deals (from $5.3 billion to $1.4 billion), just under 58% for Series A deals (from $3.5 billion to $1.5 billion) and just over 38% for seed deals (from $932 million to $576 million). While the percentage decline in amount raised for Series D and later deals during the full year of 2022 is consistent with that seen in the first three quarters of 2022, the decline increased meaningfully for Series C deals and earlier between the first three quarters – where the decline was 64% for Series C, 61% for Series B, 50% for Series A and only 9% for seed deals – versus the full year.
Median pre-money valuations for mid- to late-stage deals are down from highs seen during 2021, returning to levels aligned with those seen in 2020. Series A valuations also are down from the highs seen in late 2021 but are generally still higher than pre-pandemic levels. The valuations for seed deals were somewhat down during late 2022 compared to earlier in the year, but they generally remain high, consistent with levels seen since mid-2021. The percentage of deals (at all stages) with a median pre-money valuation of greater than or equal to $100 million remains low at 26% of deals for December 2022, the lowest percentage seen since April 2020.
Overall, the percentage of up rounds continued to decline, representing just 79% of deals for Q4 2022. Up rounds have not represented less than 80% of deals since Q1 2017. Down rounds represented 14% of deals during Q4 2022, and flat rounds represented 7% of deals during Q4 2022, the highest percentages reported since Q2 2020 for down rounds and Q3 2020 for flat rounds.
Despite the decline in invested dollars, deal volume, valuations and up rounds, deal terms themselves continued to be generally favorable for companies in Q4 2022. During the quarter, 96% of our reported deals had non-participating preferred stock, up just slightly from the 95% reported for Q3 2022. The percentage of deals with a pay-to-play provision remained low, at just 4.1% of reported deals, consistent with the percentages for such deals throughout 2022. The percentage of deals involving a recapitalization continued to decline, representing just 0.37% of deals in Q4 2022, returning to a percentage equivalent to those seen in Q1 2022 and during 2021.
In PitchBook's Q3 2022 Global League Tables, Cooley continued to hold the top spot globally and in the US for representation of companies in venture capital transactions and was ranked as the #1 law firm for representation in late-stage venture financings. Cooley also ranked as the most active law firm in various industry sectors for venture capital financings – including in pharma and biotech, energy, healthcare (devices and supplies, services and systems), IT hardware and media.
Spotlight on technology
Deal volume and invested capital for technology company venture financings continued to decline in Q4 2022. During the quarter, Cooley handled 157 reported financings of tech companies, representing more than $4 billion of invested capital. This is the lowest deal volume for tech companies since Q4 2019, when Cooley handled 136 reported deals, and the lowest amount raised since Q1 2020, when Cooley handled 162 reported deals representing more than $3.7 billion of invested capital. As with counts across all industries, the deal count and invested capital for tech company venture financings for Q4 2022 is down significantly since one year ago, when Cooley handled 235 reported venture financing deals for tech companies, representing more than $11.5 billion of invested capital for Q4 2021. Average reported deal size remained the same during the quarter for venture financings of tech companies at just under $26 million in Q4 2022, compared to just over $26 million in Q3 2022, both down from more than $49 million in Q4 2021.
Spotlight on life sciences
In Q4 2022, Cooley handled 56 reported financings of life sciences companies, representing more than $1.2 billion of invested capital. This deal count is up slightly, while the invested capital is down slightly, from 54 reported venture financing deals for life sciences companies, representing more than $1.4 billion of invested capital in Q3 2022. Reported deal sizes for venture financings of life sciences companies also decreased to an average deal size of more than $22 million in the quarter, as compared to an average deal size of more than $26 million in Q3 2022 – and well below the averages seen throughout 2021. Similar to deals for tech companies and across all industries, the numbers for venture financing deals for life sciences companies were significantly down compared to Q4 2021, when Cooley handled 85 reported life sciences venture financing deals with invested capital of $5.5 billion and an average deal size of more than $64 million. The percentage of life sciences venture financings structured in tranches increased to 25% of reported deals (up from 20% in Q3 2022). This is the highest percentage of deals structured as tranches seen since Q3 2020.
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