Third-quarter emerging tech sector investments show mixed results

A new report from PitchBook Data Inc. finds mixed venture capital results in the emerging tech sector amid ongoing market disruption and 40-year high inflation.

The Q3 2022 Emerging Tech Indicator report tracked 153 early and seed-stage deals that involved the top 15 VC firms, relative to 5,997 total early and seed-stage VC deals, to gain a unique perspective on the products and technologies that are driving early growth opportunities.

Reflecting broader market numbers, third-quarter deal values ​​in the emerging tech indicator sector fell for the third consecutive quarter, to $4.7 billion across 153 deals. That’s down 32% from $6.9 billion across 244 deals in the second quarter and down 52% from the fourth quarter of 2021’s record high of $9.8 billion across 275 deals.

ETI deal value represented 12.7% of all seed and early-stage investments, roughly in line with recent quarters but above the historical average of around 10%.

Large deals were found to be returning to normal levels, with 10 ETI deals in the quarter coming in at $100 million or more. The figure was above the historical quarterly average of five deals per quarter since 2015, but down from a peak of 22 in both the fourth quarter of 2021 and the first quarter of this year.

The largest deal in the quarter was $350 million for Flow Living Pty. Ltd., a startup focused on rental apartments. The next-biggest deals were $300 million in Mysten Labs Inc. and $200 million into Aptos Labs, both Web3 startups.

Not mentioned in the report, however, is that FTX led the Mysten and Aptos rounds. Although the VC investments did take place, given the subsequent implosion of FTX and allegations of serious wrongdoing, the funds invested in both companies could be subject to review.

The issues at FTX aside, PitchBook found that Web3 and decentralized finance startups topped values, followed by fintech and biotech. Web3 and DeFi were the largest areas of ETI investment, with $879 million invested across 24 deals. The figure, however, was the lowest invested in the sector since the second quarter of 2021 and well below a peak of $2.3 billion invested in the first quarter of 2022.

Over the 12 months to the end of the third quarter, $6.5 billion was invested in Web3 and DeFi, followed by fintech with $2.7 billion.

FTX is then mentioned in the report, with PitchBook noting that it expects “the recent failure of FTX will lead to a decline in early-stage cryptocurrency investing in coming quarters.”

Outside fintech and biotech, which saw sequential increases in investment in the quarter, most other tech categories saw sequential declines in ETI investment, including Web3 and DeFi, down from $1.5 billion in the second quarter. Healthtech ETI investments dropped to $158 million from $384 million; enterprise software-as-a-service dropped to $199 million from $344 million; artificial intelligence and machine learning dropped to $204 million from $598 million; and DevOps dropped to $96 million in the third quarter from $614 million in the second quarter.

Image: PitchBook