North American VC Vulnerable in 2022 Market Turmoil -- Preqin Reports

US private capital has grown nearly 300% since 2008, but higher interest rates and lower risk appetite have hit valuations hard

LONDON, Aug. 22, 2022 /PRNewswire/ -- Today Preqin, the global leader in alternative assets data, tools, and insights, has published the Alternatives in North America 2022 report. The report examines the private capital industry in North America and how it has fared in the past year. At the end of December 2021, the total assets under management (AUM) of private capital funds focused on North America stood at $5.56tn (excluding funds of funds and secondaries), according to Preqin Pro. In December 2008 the industry's AUM was around $1.41tn.

Signs from Q2 and early Q3 2022 suggest VC is gearing up for a cold spell 

The latest Preqin data shows that North America-focused venture capital (VC) raised has fallen from $43bn in Q1 2022 to $36bn in Q2 2022. Concerns over start-ups' high cash burn rate and limited exit options caused by the fall in public equity markets have extended funds' holding periods and slowed capital distributions — with a knock-on effect of weaker fundraising.

Higher interest rates and lower risk appetite have hit venture valuations hard and made it more challenging for venture-backed companies to receive additional financing. Due to lower fundraising activity and a declining earnings outlook, venture-backed companies have been prompted by their investors to preserve cash more proactively. Preqin expects VC to be the asset class most impacted by the recent market turmoil.

VC funds which deployed capital during 2020 and 2021 are likely to see valuations fall significantly. But those with significant volumes of dry powder could see a happy hunting ground for new investments. There will be a balance between dry powder being deployed in new investments—creating a floor to valuations—and being invested in existing assets, as they are supported through the potential weaker market. 

Sam Monfared, VP, Research Insights at Preqin says: "Clearly, the global economic outlook has shifted over the last year. But opportunities abound. What some investors see as a threat or a risk, others see as an opportunity. And given the large ecosystem of experienced managers and investors in North American markets, the eventual path out of the looming slowdown will begin here."

Notes to Editors

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About Preqin 

Preqin is the Home of Alternatives^TM, the foremost provider of data, analysis, and insights to the alternatives industry. The company has pioneered rigorous methods of collecting private data for almost 20 years, enabling more than 200,000 global professionals to streamline how they raise capital, source deals and investments, understand performance, and stay informed. Through close partnerships with its clients, Preqin continuously builds innovative tools and mines new intelligence, helping them to make better decisions every day. For more information visit www.preqin.com.

SOURCE Preqin

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