Founder and investor activity dropped sequentially in Q3 amid summer holidays and macroeconomic concerns, but lean to stabilization in fundraising activity
DocSend, a secure document sharing platform and Dropbox (NASDAQ: DBX) company, released new data analysis based on its weekly Pitch Deck Interest (PDI) metrics showing founder and investor pitch deck activity slowed down in the third quarter of 2022, indicating a return to typical summer seasonality after two years of sustained growth. This moderate decrease in activity, especially for investors in comparison to Q2, signals that 2022’s startup funding slowdown is stabilizing, giving founders a reason to be optimistic for Q4 and 2023.
Q3 is typically a slow quarter for early stage fundraising, with summer holidays and vacations impacting founder and investor activity. Fundraising activity during Q3 in 2020 and 2021 bucked that seasonality trend with double-digit increases. The data for 2022 tells a different story: in a year-over-year (YoY) comparison, DocSend’s PDI data revealed a 5.6% increase in founder activity (an indicator of market supply) in Q3, contrasted with a minimal 1.65% decline in investor activity (an indicator of market demand) over the same period. The analysis shows that seasonality has returned to a certain degree and is commensurate with an overall slowdown in fundraising outcomes this year.
When looking at trends quarter-over-quarter, early stage fundraising activity held relatively steady, contrary to the volatility seen in the public markets. Founder and investor activity declined by 3.06% and 3.25% respectively from Q2, but the decline is less than what was reported for the previous quarter, indicating stabilization in fundraising activity.
Amid lingering macroeconomic fears, including public market instability, inflation, and a potential recession, founders can remain optimistic in the amount of capital raised by VCs in 2022.
U.S. investors are currently holding onto $290 billion, including $162 billion reserved for new investments, which is estimated to be enough capital to invest at the market’s current pace without raising another dollar for three years, according to The Information. While it’s unlikely that investors will be as eager to invest this capital as they were in 2021, this volume of available funding indicates that there are still deals to be made at the early-stage level.
In a year-to-date (YTD) comparison, PDI data shows an 11.3% increase in founder activity in the first nine months of the year, outpacing a 1.6% increase in investor activity from 2021. However, the roughly 16% YTD supply and demand gap from Q2 has shrunk to under 10% in Q3, again indicating a leveling out in the market after the first half of 2022.
“Q3’s slowdown was not as significant as the downturn in fundraising activity we saw in Q2. The relatively moderate summer lull can be seen as an indicator that investors are still pursuing the right early-stage deals,” said Justin Izzo, lead data and trends analyst at DocSend. “We expect founder activity to outpace investor activity for the rest of the year. The amount of dry powder raised by VCs in 2022 may lead investors to continue to seek out deals, but they’ll likely do so with continued hesitancy. Founders should approach Q4 with mindfulness, and remain adaptive to investors’ cautious interest.”
Time spent by investors reviewing pitch decks saw no change from Q2. This metric declined 3.7% YoY and 7.1% YTD while investors ramped up speed to make a decision, but the consistency with Q2 further signals stabilization.
There are three core metrics unique to DocSend for tracking investors’ hunger for deals and founders’ quest for capital.
- Founder links created – the average number of pitch deck links each founder is creating via DocSend. This serves as a proxy for the supply of startups seeking funding. A “link” refers to the unique URL a founder creates using DocSend to share their pitch deck with investors. When the average number of links increases, it means that founders are sending their decks out to more investors.
- Investor deck interactions – the average number of investor interactions for each pitch deck link. This serves as a proxy for demand for investments. The higher the interaction metric, the more often decks are viewed, shared, and revisited by potential investors.
- Investor time spent – the average time spent per pitch deck by potential investors. This metric offers a look at how long VCs are spending reviewing deals. More time spent per deck could mean investors are more closely scrutinizing deals.
DocSend releases quarterly analyses via the Pitch Deck Interest metrics to track and predict the investment landscape and better inform founders about the volatility or stability of the venture capital environment.
DocSend enables companies to share business-critical documents with ease and get real-time actionable feedback. With DocSend’s security and control, startup founders, investors, executives, and business development professionals can build business partnerships that have a lasting impact. Over 30,000 customers of all sizes use DocSend today. Learn more at docsend.com.
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