KyleStanford,CAIA

SeniorAnalyst,VentureCapitalkyle.stanford@

JamesUlan

LeadAnalyst,EmergingTechnology

james.ulan@

AliJavaheri

AssociateAnalyst,EmergingTechnology

ali.javaheri@

PitchBookData,Inc.

JohnGabbertFounder,CEO

NizarTarhuniVicePresident,InstitutionalResearchandEditorial

PaulCondraHeadofEmergingTechnology

Research

EMERGINGTECHRESEARCH

H12023VCTechSurvey

VentureInvestorsBullishonAI,CautiousonFundraising

InstitutionalResearchGroupAnalysis

PitchBookisaMorningstarcompanyprovidingthemostcomprehensive,mostaccurate,andhard-to-finddataforprofessionalsdoingbusinessintheprivatemarkets.

PaulCondra

HeadofEmergingTechnology

Research

paul.condra@

Keytakeaways

?Weconductedasurveyof58VCinvestorstounderstandtheirattitudestowardtechnologyandtheVCecosystem.

?TheVCcommunityisbullishontheimpactsofAI,especiallygenerativeAI,andexpectsittodriveinnovationandgrowthopportunitiesoverthenext12months.

?2022’s“techwreck”hadamixedimpactontheindustryandisviewedashavingbothstifledandpromotedinnovationinvariousways.

?VCfundinglevelsareexpectedtodecreasemoderatelyorstronglyoverthe

pbinstitutionalresearch@

next12months,partlyduetothecollapseofSVB,butfundraisingplanshavenotchangedsignificantly,and2023isexpectedtobeastrongvintageyearforfundperformance.

Publishing

DesignedbyJennaO’Malley

PublishedonApril28,2023

Contents

Keytakeaways1

Executivesummary2

Surveydemographics3

Technologyexpectations5

VCecosystemexpectations9

1

PitchBookAnalystNote:H12023TechSurvey

Executivesummary

InMarch2023,wesurveyed58VCinvestorstotakethetemperatureoftheirattitudestowardtechnologyandthestateoftheVCecosystem.OursurveywasuniquelytimedbecauseitcoincidedwithtwosignificanteventsthatarelikelytohaveprofoundimpactsontheVCindustry:thefreneticadoptionofChatGPTandthecollapseofSiliconValleyBank(SVB).Ingeneral,oursurveyindicatesthattheVCcommunityisverybullishontheimpactsofartificialintelligence(AI);anticipatesfurtherdeclinesinVCfunding,partlyasaresultofSVB’scollapse;andexpectsvaluationstobecomemoreattractiveoverthenextyear.

OursurveyrespondentsrepresentabroadsetofanalystsandGPsacrossawiderangeoffundsizes.WeaskedthemquestionsrelatedtocurrenttechnologytrendsaswellasthestateoftheVCfundingecosystem.Notsurprisingly,thisgroupwasthemostbullishonAIasbeingthelargestdriverofinnovationandgrowthopportunitiesoverthenext12months.Byawidemargin,theyviewgenerativeAIasbeing“verydisruptive”overthenextfiveyearsandidentifiedenterprisetechnologyandfinancialtechnology(fintech)asamongtheareaslikelytoexperiencethemostdisruption.Accordingly,70.7%ofrespondentsbelieveitislikelythatgenerativeAIwillspawnanewwaveoftechnologyunicornsoverthenextfiveyears.

Whenaskedaboutthe“techwreck”of2022,respondentswereevenlysplitinhowtheyvieweditsimpactonthepaceoftechnologicalinnovation,withhalfviewingtheimpactaspositiveandhalfviewingitasnegative.Respondentswhoviewedtheimpactasnegativesaidthetechwreckcouldleadtolessfundingforstartups,scareoffinnovatorsandentrepreneurs,andcausecompaniestofocusonmaintainingcurrentpositionsasopposedtopursuinggrowthopportunities.Respondentswhosawapositiveimpactsaidthetechwreckcouldremoveunproductiveparticipantsinthemarket,funnelmorecapitalonlytothebestcompanies,andencourageleanerteamsthatcanmovefaster.

Wealsoaskedsurveyrespondentsaboutthestateofventurefundingandhowtheeventsofthepastyearhaveimpactedthefundingenvironment.Overall,themoodoftherespondentscouldbecharacterizedassteadyandcautious.WhenaskedhowVCfundingwillchangeoverthenext12months,mostparticipants(43.1%)saidtheyexpecteitheramoderateorastrongdecreaseinVCfunding,while32.8%saidtheyexpectfundinglevelstoremainthesame.WhilewebelievethissentimentwaslargelysimilarbeforethecollapseofSVB,61.5%ofparticipantssaidtheybelievethebank’sfailurewouldcontributetoreducedfundingoverthenextyear.Additionally,77.6%ofrespondentssaidtheyexpectvaluationstobecomemoreattractiveoverthenextyear,indicatingthegroupstillseessomedownsidetothemarket.Still,thegroupsignaledamarginaldegreeofoptimismrelatedtofundraising,withmostrespondentssayingtheirfundraisingplanshavenotchangedandindicatingtheyexpect2023tobeastrongvintageyearforfundperformance.

2

15.5%

15.5%

13.8%

6.9%

PitchBookAnalystNote:H12023TechSurvey

Surveydemographics

Whatisyourroleatyourventurecapitalfirm?*

48.3%

General

partner

Associate

Principal

Other

Analyst

Source:PitchBook?Geography:Global*AsofApril4,2023

Whereis

yourVCfirmlocated?*

MiddleEast

4.7%

Oceania

3.5%

Asia

5.9%

NorthAmerica

20.3%

Europe19.3%

CentralAmerica

2.3%

SouthAmerica

5.9%

Source:PitchBook?Geography:Global*AsofApril4,2023

3

7

5

4

1

1

1

1

3

3

27.6%

15.5%

0.0%

PitchBookAnalystNote:H12023TechSurvey

WhatsortoftechnologiesdoesyourVCfirmprimarilyinvestin?*

30

Various

SaaSHealthtechConsumer

tech

Climate

tech

Fintech

AI&MLAgtechBiotechMobility

tech

Source:PitchBook?Geography:Global

*AsofApril4,2023

Whatisyourfirm’scurrentAUM?*

56.9%

<$50M

$50M-$250M

$250M-$1B

$1B+

Source:PitchBook?Geography:Global*AsofApril4,2023

4

20.4%

12.5%

9.2%

8.6%

5.9%

5.9%

5.9%

18.1%

13.2%

12.5%

7.6%

3.5%

6.3%

2.8%

PitchBookAnalystNote:H12023TechSurvey

Technologyexpectations

SurveyrespondentsexpectAItobethecoresourceoftechnologyinnovationoverthenextyear.WeattributedthistotheintroductionofChatGPTandtheriseofgenerativeAIasapopularconsumertechtoolinrecentquarters.WeexpectorganizationsandstartupstobegininvestingsignificantlyinbuildingoutgenerativeAIcapabilitiesforbothproductivityandefficiencyinitiativesandtoenhancethecustomerexperience.Surveyrespondentsalsonotedclimatetechnologiesandbiotechassignificantsourcesofinnovation.Weexpectclimatetechnologieswillcontinuetobenefitfrombothregulatoryandconsumerdemandforcarbon-controllingtechnologiesandthecontinuedeffortstomakepowergridsmoresustainable.ThebiotechindustryhascontinuedtochurnaheaddespitethebroaderpullbackinthemarketandhasbenefitedfrommodernAItechnologiesacceleratingthepaceofdrugdiscovery.

Inwhichareasoftechnologydoyouexpectthemostinnovationoverthenext12months?*

31.6%

ArtificialClimateBiotechFintechEnterpriseCryptoFoodtechOther

intelligencetechSaaStechnologies

Source:PitchBook?Geography:Global*AsofApril4,2023

Inwhichareasoftechnologydoyouexpectthemostgrowthandadoptionoverthenext12months?*

36.1%

ArtificialClimateFintechEnterpriseBiotechCryptoFoodtechOther

intelligencetechSaaStechnologies

Source:PitchBook?Geography:Global*AsofApril4,2023

5

21.7%

20.8%

10.8%

10.0%

5.8%

27.6%

1.7%

PitchBookAnalystNote:H12023TechSurvey

Whenaskedaboutdisruptionandcompetition,surveyrespondentsidentifiedenterprisetechnology,fintech,ande-commerceasareaslikelytoexperiencethemostpressure.WeexpectgenerativeAIwillhaveprofoundimpactsontheseareasoftechnology.Theseindustriesrelyonspecificorganizationalsoftwarethathelpspowerproductsandcustomerexperiences.TotheextentthatgenerativeAImakesiteasierforcompetitorstoquicklydevelopcomparablesoftwareand/orcustomerexperiences,thiscouldfuelmorecommoditizationofserviceofferingsandmakeiteasierforcustomerstoswitchproviders.

Inwhichareasoftechnologyareincumbentsmostlikelytoexperiencedisruptive/competitivepressuresfromstartupsoverthenext12months?*

30.8%

Enterprisetechnology

FintechE-commerceSocialmediaStreaming

media

Other

Source:PitchBook?Geography:Global*AsofApril4,2023

HowdisruptivedoyouthinkgenerativeAIwillbeoverthenextfiveyears?*

70.7%

Verydisruptive

Moderatelydisruptive

Notdisruptive

Source:PitchBook?Geography:Global

*AsofApril4,2023

6

25.9%

24.1%

3.5%

1.7%

PitchBookAnalystNote:H12023TechSurvey

WilladvancesingenerativeAIspawnanewwaveoftechnologyunicornsinthenextfiveyears?*

44.8%

VerylikelyLikelyUnsureUnlikelyVeryunlikely

Source:PitchBook?Geography:Global*AsofApril4,2023

Respondentsprovidedawiderangeofviewsonhowthemarketpullbackoverthepastyearhasimpactedthepaceoftechnologicalinnovation.Interestingly,respondentsweresplitdownthemiddleindecidingwhethertheimpacthasbeenpositiveornegative,perhapsreflectingthecomplexityofthesituationbutalsothewide-rangingperspectivesonwhatultimatelyfuelsinnovation.Weprovidesomeeditedviewpointsbelow.

Negativeimpactsofthemarketpullback:

?Ithasweakenedgoodbusinessesanddrivenentrepreneursoutofthemarket.

?Ithascausedcompaniestofocusonmaintainingpositions,notonpursuinginnovationandgrowth.

?Lessdealflowscaresoffinvestorsandinnovators.

?Theperceptionofriskanduncertaintystopsgrowthanddecision-making.

Positiveimpactsofthemarketpullback:

?Bigtechlayoffshaveenabledstartupstocompetefortalent.

?Ithasreducedcapitalflowtostartupswithneedlessand/orweakinnovations.

?Ithashelpedsharpenthefocusofentrepreneurs.

?Valuationshavebeenresettoamorerationallevel.

Byawidemargin,respondentsviewedincreasedinterestratesasthemostinfluentialmacroeconomicorsociopoliticalfactorimpactingtechnologicalinnovation.

7

8.6%

6.9%

5.2%

5.2%

1.7%

PitchBookAnalystNote:H12023TechSurvey

Hasthe“techwreck”of2022hadapositiveornegativeimpactonthepaceoftechnologicalinnovation?*

Negative50.9%

Positive

49.1%

Source:PitchBook?Geography:Global*AsofApril4,2023

Whichofthefollowingmacroeconomicandsociopolitical

factorsarelikelytohavethebiggestimpactontechnologyoverthenextfewyears?*

72.4%

Higherinterestrates

Political

polarization

Other

WarinUkraineTechnologyIncreasedlimits

industrylayoffsonabilityto

shipIPabroad

Source:PitchBook?Geography:Global*AsofApril4,2023

8

29.3%

20.7%

13.8%

3.5%

38.5%

5.8%

0.0%

PitchBookAnalystNote:H12023TechSurvey

VCecosystemexpectations

Forthemostpart,VCinvestorsexpectinvestmenttodecreaseoverthenextyear,with29.3%expectingamoderatedecreaseand13.8%expectingastrongdecrease.However,therewassomeoptimismintheresults,withasolid32.8%expectingfundinglevelstostaythesameand24.1%expectinganincreaseinfunding.VCfundinglevelshavedeclinedforthepastfourquartersandreachedapre-pandemiclowinQ12023(seethe

Q12023PitchBook-NVCAVentureMonitor

).WhilewebelievethissentimentwaslargelysimilarbeforethecollapseofSVB,61.5%ofparticipantssaidtheybelievethebank’sfailurewouldcontributetoreducedfundingoverthenextyear.

DoyouexpecttotaldollarsofVCinvestmentintechnologystartupstoincrease/decreaseoverthenext12monthscomparedtotheprevious12months?*

32.8%

IncreasestronglyIncreasemoderatelyStaythesameDecreasemoderatelyDecreasestrongly

Source:PitchBook?Geography:Global*AsofApril4,2023

TowhatextentdoyoubelievethatSiliconValleyBank’scollapsewillimpactfundingforstartupsoverthenext12months?*

55.8%

Willextremelyreducefunding

Willmildly

reducefunding

Willhaveaneutral

impactasthemarket

willadjust

Willpositively

impactfunding

Source:PitchBook?Geography:Global*AsofApril4,2023

9

27.6%

15.5%

6.9%

0.0%

20.7%

17.2%

8.6%

3.5%

6.9%

PitchBookAnalystNote:H12023TechSurvey

Additionally,77.6%ofrespondentssaidtheyexpectvaluationstobecomemoreattractiveoverthenextyear,indicatingthegroupstillseessomedownsidetothemarket.Still,therespondentssignaledamarginaldegreeofoptimismrelatedtofundraising,withmostsayingtheirfundraisingplanshavenotchangedandindicatingtheyexpect2023tobeastrongvintageyearforfundperformance.

Doyouexpectvaluationstobemoreorlessattractiveinthenextsixto12monthsthantheywereinthelastsixto12months?*

50.0%

Alotmoreattractive

Alittlemore

attractive

Nochange

Alittleless

attractive

Alotless

attractive

WhichVCvintagedothisgroup?*

you

Source:PitchBook?Geography:Global*AsofApril4,2023

thinkwillhavethehighestIRRoutof

43.1%

2019

2020

2021

2022

2023

2024

Source:PitchBook?Geography:Global*AsofApril4,2023

10

36.2%

13.8%

6.9%

35.9%

15.1%

3.8%

PitchBookAnalystNote:H12023TechSurvey

Hasthecurrentstateofthemarketimpactedfuturefundraisingplans?*

43.1%

Planshavenotchanged

Plannedfundraisehas

beenpullednearer

Planshavebeen

pushedfurther

Noplanstoraise

anotherfund

Source:PitchBook?Geography:Global*AsofApril4,2023

Whendoyouplantobeginraisingyournextfund?*

45.3%

≤1year1-2years3-5years5+years

Source:PitchBook?Geography:Global*AsofApril4,2023

Despitethemarketpullback,respondentsstillcitedseveralaspectsofthecurrentenvironmentthathavenotchanged.Forexample,theysaidtheweakIPOmarkethas,forthemostpart,notimpactedearly-stageinvesting.WhilePitchBookdatahadshown

resiliencyinearly-stageVCfundingandvaluations

relativetolate-stageVCthroughout2022,thistrendturnednegativeinQ12023.Additionally,respondentssaidtheyarelargelystillacquiringsimilar-sizestakesinVCrounds.Respondentsalsosaidthat,similartobeforethemarketpullback,theyaremostlyrecommendingtheirportfoliocompaniesavoidventuredebt,anichesegmentofthefundraisingmarketthathadbeenrelativelystrongbutfacesmorescrutinyafterthe

SVB

collapse

.Lastly,surveyrespondentssaidLPsarenotexpectinghigherreportingrequirementsrelativetobeforethepullback.

11

40.4%

8.8%

22.4%

13.8%

PitchBookAnalystNote:H12023TechSurvey

HowdoesthecurrentweakIPOmarketimpact

early-stageinvesting?*

50.9%

Negatively,itreducesearly-stageinvestingactivity

Positively,itincreases

early-stageinvestingactivity

Noimpact

Source:PitchBook?Geography:Global*AsofApril4,2023

Didthepercentagestakeacquiredinroundsyouinvestedinchangeoverthelast12months?*

63.8%

Yes,increased

No,stayedthesame

Yes,decreased

Source:PitchBook?Geography:Global

*AsofApril4,2023

12

29.1%

21.8%

18.2%

28.6%

PitchBookAnalystNote:H12023TechSurvey

Hasrecommendationtowardtakingondebtchangedbetweenyouandyourportfoliocompaniesoverthepastyear?*

30.9%

Yes,recommendingdebtmore

Yes,recommendingdebtless

No,stillrecommendingdebtNo,stillrecommending

againsttakingondebt

Source:PitchBook?Geography:Global*AsofApril4,2023

ArelimitedpartnersaskingforhigherreportingrequirementsfromGPs?*

71.4%

Yes,limitedpartnersarelooking

forhigherreportingstandards

Nothinghaschanged

Source:PitchBook?Geography:Glob