A data-driven look at the state of private capital

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There’s no doubt that VC and PE investors right now are adapting to a new valuation environment. From deal sourcing and diligence criteria to the competitive dynamics of what it takes to win the best deals, a lot has changed in a year.

Last year’s decline in global venture funding reflects this. The market in the last quarter of 2022 dropped by 47% compared to the height of the market in Q3 2021.

To find out which way it’s headed next, we surveyed more than 300 investment professionals worldwide for their take on the future of dealmaking. The consensus was that there was none: about a third said there would be more investments, a third about the same, and a third predicted fewer.

Diving into the survey’s qualitative responses revealed an interesting duality of narratives—what you could call the tale of the pessimist and the tale of the optimist. The pessimist’s story was defined by a market decline, consolidations, and startup failure.

On the other hand, the optimist predicted this would be a busy year for dealmakers, full of opportunities for companies that have the potential to dominate their respective markets if they raise again. With valuations down from their 2021 highs there has been a move to more investor-friendly terms, making these increasingly attractive opportunities for VCs with capital to allocate.

But which story is true? It’s important to look at the underlying numbers to understand the real state of private capital markets today.

What Affinity data reveals about the state of dealmaking

We get a unique and aggregate lens on what’s happening across the investment industry. Our data tells us that 2022 was a colossal year for dealmaking activities. There were more than 1.1 million deals added and managed using the Affinity platform, from 3,000 firms in 80 countries—and new deal volume was up by 70% from the year before.

Deal flow on both sides of the Atlantic tracked at historic levels throughout 2022 and even into this year. Of course, not all that activity translates into investments. Another finding from our survey was that the average deal takes more than 34 hours of research—a number that’s likely to be on the rise as dealmakers look to reset their portfolios with stronger investments that meet a much stricter set of criteria.

Focus has transitioned away from hype, risk, and growth-at-all costs to companies with solid fundamentals, strong metrics, durability, and the promise of long-term growth. Simpler, more proven business models have become more attractive than the unproven ‘leap of faith’ ones.

What we see now is a market where essential products and services are thriving, while those that are deemed nice-to-have are struggling to grow. And a lot of companies are painfully figuring out which of those two camps they fall into.

The dual focus for investors right now

Market uncertainty, combined with this refocus on the fundamentals, is driving dealmakers to reevaluate where they spend their time. The largest proportion of respondents to our survey—more than a third—told us they would be going on the offensive with new deal prospecting. The second highest proportion (23%) said they’d be acting defensively by focusing on support for portfolio companies and their founders to help them navigate the possible downturn.

Whichever way investors steer, it’s clear that relationships lead the way. On average, Affinity users added 33% more contacts to their network in 2022 than in 2021. Dealmakers are working hard to build out the relationships and connections they need to drive both new deal prospecting and portfolio support.

The next step is to derive insights from those networks using relationship intelligence. That helps answer questions like “Who's got the strongest relationship with this company?” or “Who knows this specific founder or CEO, CFO? And have we already talked to them before?” meaning dealmakers can move faster to find new deals or support their existing ones.

Whether this year ends up being defined by the pessimist or optimist’s tale, it will be relationship intelligence that separates the best from the rest.

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