Venture Capital assets under management (AUM) have experienced double digit annual growth in the 20-30% range over the past four years and now stand at a record high of $2trillions, according Q1 2022 Venture Capital Report by Preqin.
As the venture capital market matures, 14% of institutional investors are planning to commit $600 millions or more over the next 12 months, up from 10% during the same period last year and the only category that recorded more than 1% year-on-year growth, the report said.
Confidence remains highest in the North American and European markets. There has been a noticeable uptick in the proportion of investors targeting these regions, increasing from 53% to 59%, and 52% to 60%, respectively.
Investor interest shifts and dry powder grows
Experts highlight that amid market uncertainties and elevated asset valuations, investor interest has shifted to seed, startup and early-stage focused funds in search of opportunities, with nearly half (48%) of investors aiming to place capital in the early-stage strategy in the next 12 months, up from 40% in Q1 2021.
Venture capital dry powder has grown by $43.1 billions during the first quarter of 2022 to $478.5 billions. Early-stage funds’ dry powder increased by 24% during the first quarter of 2022. Now, early-stage funds make up around a third, or $168.6 billions, of total Venture Capital dry powder, making this the most significant specialized strategy in the risk world. Expansion/late-stage funds’ dry powder level, however, fell by 6% between Q1 2022 and FY 2021.
Kebelyn Lee, Associate Vice President, Research Insights at Preqin, says: “In spite of the sell-off in some of the more speculative technology stocks in the public equity market so far this year, there does not appear to be any immediate impact on venture capital activity. Fundraising came in slightly lower year on year but is still at a strong level given a strong base of comparison from 2021. Deal volume in APAC has been notably strong compared to North America and Europe in the last few quarters.”
Larger funds pull ahead
Venture Capital fundraising continued at a strong pace in Q1 2022. $54billions was raised by global Venture Capital funds in the quarter, an 11.1% rise on Q4 2021, but an 8.8% decline on the same period last year. The year-on-year decline is not a bad result given the strength of activity in late 2020 and going into 2021.
Despite a strong fundraising record, VC investors’ concerns over asset valuations, competition for assets, and the Russia-Ukraine conflict remain relevant.
In Q1 2022, just 202 funds were raised—the lowest number of funds raised since 2017—implying that investors are putting their trust and capital in larger and more experienced VC managers.
Given the global average venture capital fund size in Q1 2022 jumped from $126.9 millions to $267.3 millions quarter-on-quarter, investors are clearly demonstrating a preference in larger funds.
This trend is especially obvious in North America and Europe, which saw a 190% and 48% increase in average fund size during Q1 2022. Globally, there has also been a drop in planned commitment below $50 millions.