Second, an active early stage VC market has funded an enormous pipeline of promising and highly innovative companies over the past few years, many of which will ultimately “graduate” into the growth stage funding landscape.
profitability, or because they now find themselves in a more favorable competitive position. Alternatively, they may want to take advantage of a friendlier fundraising environment because they have grown into – or past – their last round valuation, they have found their “efficient frontier” on growth vs. They are likely to need to raise capital before the end of 2023 or during 2024 because they are running low on cash. Many companies delayed fundraising over the last 12-18 months, either by reducing spend and/or by taking out lines of credit that are becoming less attractive due to rising interest rates. 2 However, we believe this is likely set to change for two reasons. The drop in growth stage deal volume was partly because many companies avoided raising capital during the recent volatile and uncertain environment. Venture capital (VC) deal activity across all stages, but notably the growth stage, fell dramatically in 2022, 1 especially in comparison with the euphoric activity of the prior year.
Potential Record Demand for Growth Capital The current banking crisis is also creating market dislocations that are likely to accelerate the capital supply-demand imbalance. An improving valuation climate and the robustness of underlying innovation trends creates the potential for one of the best growth stage investing environments in years.
The second is the demand for – and state of – technological innovation. The first is the valuation climate, which is shaped by the demand for capital, its corresponding supply, and public market sentiment. Generally, each period is largely determined by two (mostly) independent factors. We have seen great times to invest, and less attractive times to invest. A strong pipeline of innovative startups means the demand side of the equation will likely be further swollen by a cohort of early stage companies that are now graduating to the growth stage.įor over 50 years, Adams Street has observed the intricacies of the growth stage ecosystem through several market cycles.Simultaneously, many non-traditional providers of capital have exited the growth stage arena, creating a supply-demand imbalance.After delaying fundraising for 12-18 months following valuation declines in 2022, we believe demand from growth stage companies for additional capital is likely to surge from late 2023.
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