Member Article

With the well-known challenges of the last ten months or so, market conditions deteriorated substantially over 2022 and the venture capital (VC) market became a far more challenging one in which to agree a valuation and raise money.

While those challenges are not over, from speaking to VC clients and others, there's a cautious optimism that as 2023 progresses the market will slowly improve. We’re already seeing more new termsheets come through compared with late 2022 as some VCs still have plenty of capital to deploy. 

Accessing that money will continue to prove a challenge for founders, who should expect processes to take longer than in past years and their plans to be subject to greater scrutiny as VCs will remain cautious, wanting to be sure they are backing the best businesses. We know from founders that due diligence, particularly on the numbers and plans to increase both revenue and profit, will be more extensive and they are likely to be subject to greater challenge from their investors than in recent years. 

There may also be a rise in VCs that are more accustomed to later stage deals looking at an earlier stage than they might typically, as the IPO market is likely to remain slow and corporate acquirers will be very picky over what they want to spend.

This likely lack of immediate exit opportunities will drive VCs to consider larger funding rounds at an earlier stage to help de-risk their portfolios and drive continued VC interest in innovative businesses, which are less exposed to consumers. Investment is likely to continue to increase in deep tech, energytech and healthtech in particular, with sustainability and climate change remaining key drivers of innovation, and ultimately for companies to remain private for longer as they grow.