A Review of the Health and

Productivity of the Innovation

Economy

February 2023
 February 2023

We continue to believe in the innovation economy in the face of adversity. Challenging market conditions are periods
for building, particularly for startups. Today, founders have time to slow down, focus on product market fit, and
develop long-lasting innovations while drawing on a greater availability of talent. Further, after corrections, there
tends to be a long period of economic expansion. In the three years during and directly after the Global Financial
Crisis (GFC), 127 unicorns were founded — a 76% increase over the prior three years.
Today, US venture capitalists (VCs) hold a record $300B in dry powder waiting to be deployed, but investment has
slowed. Following recessions, the weighted average age of dry powder has historically increased due to decreased
investment and fundraising. Today, the weighted average age of dry powder is nearly 50% lower than its peak
following the GFC, indicating that if the economy ends up in a so-called “hard landing,” we can expect today’s dry
powder to sit on the shelf a little longer. That said, investors are on the clock to deploy capital and generate a return
for limited partners (LPs) — and financial incentives are aligned for them to deploy that capital.
As a result of slowing investment, capital is scarce for founders. Tightening venture capital (VC) investment and
falling public markets have led to the most significant private market valuation correction in the last 20 years; the
median late-stage tech pre-money valuation fell 56% in 2022. Furthermore, 33% of late-stage tech companies have
yet to be repriced since 2021, indicating there may be challenging fundraises on the horizon for some companies.
Additionally, the slower fundraising environment has led nearly 40% of US VC-backed tech companies to cut net burn
year over year (YoY) as they focus on extending cash runway and improving profitability. Only 50% of US tech
companies have increased payroll spending quarter over quarter (QoQ). As a result of decreasing burn and economic
headwinds, US VC-backed tech companies are growing more slowly. If headwinds persist, some companies will
likely fail, but those that come out the other side will be more efficient, grittier and better equipped for long-term
growth and the demands of public markets. With layoffs continuing, we expect many talented workers to found their
own companies given falling opportunity costs — fueling the next wave of innovation.
Ultimately, despite headwinds, tech is an integral part of the US economy and will continue to grow. Since 2000, the
US digital economy has grown two times faster than the overall economy and now accounts for more than 10% of US
GDP. Today, technology is intertwined through every aspect of life and business, yet there are still many opportunities
for innovations, from tapping the power of artificial intelligence (AI) to developing solutions to climate change.

Sunita Patel
Chief Business Development Officer
Silicon Valley Bank

State of the Markets H1 2023 2

Source: PitchBook, Preqin, SVB proprietary data, US Bureau of Economic Analysis, and SVB analysis.
Category Fundraising Early-Stage Late-Stage Exits

2022 Venture Massive exits in 2021 infused LPs with The migration of tech talent away from The unprecedented revenue Underperforming tech IPOs from
Outlook From cash, while demand for venture Silicon Valley will continue, as tech multiples being paid are starting 2021 will cause hesitation for
the H1 2022 assets continues to grow. However, a companies commit to remote work. to stretch what is deemed companies planning on listing in
Report prolonged market downturn and With talent bedding in, greater support reasonable by investors. As public 2022, so we expect fewer IPOs. As
slowing growth of active investors available for startup founders, and markets soften, we expect a a consequence, private secondary
means another record year for venture many “massive” market opportunities, correction in late-stage valuations markets will rise in popularity as
fundraising is unlikely. we expect Series A tech deals2 to break starting early Q2. shareholders look for liquidity.
2,000 (1,526 in 2021).

2022 by the US VCs raised $139B in 2022, $3B more US Series A tech deals fell to 1,447. Multiples for US VC-backed tech There were only four US VC-backed
Numbers than 2021; however, fundraising slowed Furthermore, many companies brought companies with $25M-$50M in tech IPOs in 2022 and zero in Q4.
every quarter in 2022, with Q4 accounting workers back to the office, exemplified by revenue declined 46% YoY, and late- Secondary volumes remain
for 6% of annual fundraising.1 Twitter and Snap. stage tech valuations fell 56% YoY.3 suppressed given high bid-ask spread.

Grade for
6/10 5/10 9/10 8/10
2022 Outlook

2023 Venture US VC funds will likely raise ~$70B in
Outlook 2023 — a 50% decline from 2022 highs
but still the 4th highest year ever. This
decline will be driven by subdued
public markets (relative to recent
highs), higher interest rates and muted
distributions to LPs.
US Series A tech will likely decrease ~15%
to ~1,250 deals in 2023, which is aligned
with the period of stability witnessed
between 2015 and 2020. Mismatched
investor and founder valuation
expectations, increased investor scrutiny
and slowed company growth will facilitate
the regression to historic levels.
The median late-stage US tech valuation
will likely fall an additional 5%-10% in
2023 — placing it at 60%-65% below Q4
2021 levels. We are nearing a price floor
as public and private markets converge.
The additional decline will result from
companies running out of cash runway
and raising rounds on unfavorable terms.
US VC-backed tech IPOs will likely remain
dormant in H1 2023. As the market gets
clarity on the rate ceiling, forward
revenue multiples align with long-term
averages and pent-up demand builds
from institutional investors and public-
ready companies, at least 10 US VC-
backed tech companies will IPO in 2023.

Notes: 1) Fundraising by fund close date. 2) Tech defined using PitchBook’s information technology classification. 3) Revenue defined as annual revenue run rate
for a given quarter; multiple calculated using trailing three-quarter median; tech defined using SVB’s proprietary taxonomy; late-stage defined by PitchBook.
Source: SVB proprietary data, PitchBook, S&P Capital IQ and SVB analysis. State of the Markets H1 2023 3
Macro:
“Tech-tonic” Shifts for Long-term Growth

Capital:
Ready and Waiting

Investment:
Venturing Into a New Normal

Private Market Benchmarks:

Extinguishing Excess Burn

Exits:
Coming Soon… Please Try Again Later

International:
Heading North and Crossing the Pond

State of the Markets H1 2023 4

State
The of
Future
the Markets
of Climate
H1 2023
Tech 5
Macro

1.0% -19.4% -1.8% 6.4% 26% 8.2%

YoY YoY YoY YoY YoY YoY

-0.4% QoQ -31% QoQ -7.7% QoQ

Change in Money Change in CBOE Change in
0.7% QoQ 7.1% QoQ
Supply (M2)
0.5% QoQ
Volatility Index3 USD Index4

Change in Real GDP2 Change in S&P Change in Consumer

500 Performance Price Index (CPI)

Equity Debt Liquidity

$9B -74%
QoQ 3.88% 1%
QoQ 0 -100%
QoQ 254 -13%
QoQ

Quarterly VC Current 10-Year Quarterly VC- Quarterly VC-

-74% 155% -100% -57%
Fundraising YoY
Treasury Yield YoY Backed Tech IPOs YoY
Backed M&A YoY

$37.7B
Quarterly VC
-18%
QoQ
$10B
Quarterly Convertible
-9%
QoQ
7
Quarterly VC-backed
-42%
QoQ

-60% -47% -76%

Investment YoY Debt Volume6 YoY De-SPACs8 YoY

$70M 138bps
5% -17%
QoQ QoQ

Median Late-Stage -30% Investment-Grade 41%

Valuation5 YoY Credit Spreads7 YoY

Notes: 1) YoY defined as Q4 2021 to Q4 2022; QoQ defined as Q4 to Q3; for index values the last day of each period was used. 2) Real GDP data is subject to revision after initial release. 3) Chicago Board
Options Exchange Volatility Index. 4) Measured using the DXY. 5) Late-stage category defined by PitchBook. 6) Convertible debt and preferred volume includes deals greater than $25M in base deal size.
7) ICE BofA US Corporate. Index Option-Adjusted Spread; one basis point (bps) is equivalent to 0.01%. 8) Methodology updated since H1 report to represent de-SPACs of US VC-backed companies.
Source: PitchBook, ICE Data Indices, Federal Reserve Board of Governors, Preqin, ICE Futures, Chicago Board Options Exchange, Bureau of Labor Statistics, Deal Logic, and SVB analysis. State of the Markets H1 2023 6
 Percentage of Countries Raising Interest US Inflation2 and Interest Rate Hikes YoY
Rates and Average Interest Rate1 by Decade
Average Interest Rate Percentage of Countries Raising Rates 1990s 2000s 2010s 2020s

80% 8% 8% 2022
2021

Share of Countries Raising Interest Rates

On the back of a pandemic-driven and stimulus-fueled
couple of years, the US is in a sustained market downturn. 70% 7% 7%
Despite this, inflation continues to remain elevated —

Average Interest Rate

60% 6% 6%

Inflation (End of Year)

though there are signs of easing in recent readings. Inflation
increased 6.5% YoY in December 2022, the smallest 12- 50% 5% 5%
month increase since October 2021. However, the types of 40% 4% 4%
inflation driving the “core” figures are diverging, with prices
of goods falling as supply increases while prices of services 30% 3% 3%
are increasing due to a hot job market and escalating labor 20% 2% 2%
costs. The intricacies of inflation continue to cause pause for
investors as they remain torn over how the Fed should 10% 1% 1%
2020
pursue reducing inflation in a tempered way. Despite this, 0% 0% 0%
the Fed continues to hike rates at the fastest pace in nearly

Dec '21
Jul '21

Jul '22
Aug '21

Nov '21

Apr '22

Aug '22

Nov '22
Jun '21

Sep '21

Jun '22

Sep '22
Oct '21

Feb '22

May '22

Oct '22
Jan '22

Mar '22
-6% -4% -2% 0% 2% 4% 6%
30 years and a pace about six times faster than the last
Percentage Point Change in Fed Funds Rate YoY
cycle. Based on current sentiment and expectations, the Fed
is still signaling that it plans to raise interest rates — even as
they creep closer to levels not experienced since the 2004–
2006 cycle — though it took longer to reach these levels with
Pace of US Interest Rate Hikes Since 19903 S&P 500 Returns During Rate Hike Cycles4
hikes taking place over two years. 450 Slow-Pace Rate Hike Cycle Fast-Pace Rate Hike Cycle

Change in Target Federal Funds Rate (bps)

2022 2004 – 2006 Average Return Average Return
While absolute interest rate levels are important, the pace of 400 Fastest increase
interest rate hikes is just as important, especially for equity since 1990 30%
markets. The current rate cycle is the fastest pace since the 350
1990s. Looking at historical equity market returns during 20%
300 1994 – 1995
different rate hike cycles, faster-paced rate hike cycles tend
to correspond with lower equity market returns. Notably, 250 10%
among the fast-paced rate hike cycles, the lowest equity 2015 – 2018
200
return two years after an initial rate hike occurred during the 0%
1973 rate hike cycle — a period also plagued with elevated 150
1999 – 2000
energy prices and soaring inflation. If history were to repeat -10%
itself, this could have significant knock-on effects for the VC 100
ecosystem from general partners (GPs) marking down 50 -20%
portfolios to LPs pulling back on private equity (PE)
allocations, as other asset classes offer attractive yield and 0 -30%
risk management comes more into focus. 0 6 12 18 24 30 36

+9
+0
+1
+2
+3
+4
+5
+6
+7
+8

+11
+10

+12
+13
+14
+15
+16
+17
+18
+19
+20
+21
+22
+23
+24
Months Since Rate Hike Cycle Started Months from Start of Rate Hike Cycle
Notes: 1) Based on central bank policy rates for countries reporting to the Bank of International Settlements. Latest available data as of 11/30/2022. 2) Consumer
price index for All Urban Consumers (CPI-U), seasonally adjusted. Annual data from 1990 to 2022. 3) Interest rate hike cycles based on changes in the target fed
funds rate after the initial rate hike. Data as of 1/10/2023. 4) Light shaded lines represent monthly S&P 500 returns for each respective rate hike cycle.
Source: S&P Capital IQ, Federal Reserve, US Bureau of Labor Statistics, Bank of International Settlements and SVB analysis. State of the Markets H1 2023 7
 Metrics for US VC-backed Tech Companies at IPO1 and S&P Tech Sector Returns
S&P Global 1200 Information Tech Index Median Middle 50% Change in Median from 2000 to 2021

2500 Years to IPO Post-Valuation Revenue Revenue Multiple

3x 6x -50% 2021 Peak

The tech industry has matured significantly in the last two 2000 5x $177M 36x
8.3 $3.8B
decades. No longer seen as a niche carveout of the broader 6.6 7.4
$82M $76M 18x
economy, tech products are integrated into all industries 2.9

Index Value
and sectors today. Compared to prior eras when the 1500 $751M $28M 7x 8x
$566M$485M
potential of a new technology was enough to carry a VC-
backed company to a public listing in just a few years,
1000 2000 2007 2015 2021 2000 2007 2015 2021 2000 2007 2015 2021 2000 2007 2015 2021
founders today are expected to demonstrate higher
benchmarks of success for longer before going public. Dot-Com Peak
Pre-VC Recalibration
GFC Peak
To illustrate this trend, we analyzed cohorts of tech 500 Indexed to 100
companies that went public during the peak year preceding
four recent tech downturns: the dot-com bubble, the GFC,
the 2016 tech recalibration, and the current downturn. What 0

2004

2006

2019

2021
1995

1996

1997

1998

1999

2000

2001

2002

2003

2005

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2020

2022

2023
emerges when looking at these cohorts is a story of the
innovation economy maturing over time, both in terms of
company performance and investor expectations. Most dot-
com IPO companies would be considered Series B
companies in today’s environment. The companies that US VC Investment YoY US VC Investment: Trajectory
went public in 2000 had a median age under three years
from first funding with revenue of less than $30M (in 2021
Capital Invested Deals Trend: Capital Invested Through Past Downturns2
dollars). Public investors felt the burn when many of these $400B 18.5K Dot-Com GFC 2022 2023 Extrapolated
companies failed to reach their potential. By 2007, tech IPO
$350B 2021 was an anomalous year,
metrics had improved considerably, with median age up to 15.7K 123%
and 2022, while 31% lower, is
6.6 years and revenues three times higher than the dot-com the second-highest year ever. 13.3K
$300B
cohort. 100%
By 2021, the cohort of new IPO companies had median $250B 87%
revenues six times higher than the dot-com cohort and three 100% 75%
$200B
times more operating experience. But even those more
impressive metrics couldn’t keep up with rising valuations, $150B 69%
which surged to 18x revenue in 2021 as institutional 49%
investors flocked to VC. With VC investment declining, $100B
50%
valuations will continue to rebase. However, the trend of

$171B
$147B
$150B

$344B
$237B
39%

$74B
$87B
$85B
$90B
$50B 37%
companies staying private longer will likely continue.
$0B
2021 2022 2023
2008 2009 2010 2011
2000 2001 2002 2003

Notes: 1) Revenue and valuations are adjusted to 2021 dollars. Tech sector is the S&P 1200 Global Information Technology Index.2) Extrapolation based
on exponential smoothing forecast of monthly data going back to 2011. The 95% prediction interval is from $53B to $285B.
Source: PitchBook, S&P Capital IQ and SVB analysis. State of the Markets H1 2023 8
State of the Markets H1 2023 9
 Historical US VC Returns (2005-2015) Rising Rates and Risk-Adjusted
Negative Net IRR 0%-20% Net IRR >20% Net IRR US Venture Returns6
16% of funds 53% of funds 31% of funds
25%
60%

Percent of Venture Funds that Generate

Venture as an asset class is driven by the outsized The top 25% of funds As interest rates climb, a

Acceptable Risk-Adjusted Return 3

performance of a few companies within a portfolio; the same return at least 22% net 20% smaller percentage of funds
40%

Fund Returns Net IRR

is true for funds. For example, between 2005 and 2015 only IRR, while the top 10% can generate an acceptable
31% of funds hit the industry benchmark of 20% net internal generates at least 35% risk-adjusted return.
15%
rate of return (IRR) with the top 10% of funds returning over 20%
35%. Choosing the right funds becomes even more critical in
a rising rate environment. The 10-year US treasury yield — 10% 2020
0%
what many investors consider the risk-free rate of return — Low

0%
5%

85%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%

90%
95%
increased 225 basis points during 2022. In calculating the Today
5%
risk-adjusted rate of return, we see that as the risk-free rate -20%
Fund Performance Percentile
of return climbs, a smaller basket of funds within the venture
Peak yield 15.8% in 1981→
asset class is capable of generating an acceptable risk- 0%
-40%
adjusted rate of return.1 Certainly, the risk-adjusted rate is 0% 2% 4% 6% 8% 10% 12% 14%
only one way LPs consider portfolio construction, and most US 10-Year Treasury Yield (Risk Free Rate of Return)
LPs turn to venture for its potential for outsized returns.
However, if interest rates continue to climb and remain high
for an extended period, we would expect long-term impacts
to VC fundraising.
Median TVPI and Median DPI for Percentage of US VC Fund TVPI
In the short term, the challenge for VCs is realizing the paper US VC by Vintage Year Yet to Be Realized by Vintage
value they have amassed in their portfolios. Many VCs and TVPI3 DPI4 Median Value for all Funds
LPs have started to write down their portfolios, including 100%
3.0x
Fidelity, which has written down several late-stage
Most of the value of US
investments between 30% and 60%.2 In the overall market, VC funds has yet
2.5x 80%
the median total value to paid-in capital (TVPI)3 for vintages to be realized by LPs.
between 2010 and 2018 is 49% above the prior 10 years.
2.0x
However, with 92% of US VC-backed tech IPOs since 2020 60%
trading below their IPO market caps, distributions to paid-in
1.5x
capital (DPI)4 will likely come in well below current TVPI Break
40%
levels. Secondary exchanges are seeing increased interest Even
1.0x
from buyers and sellers, but few transactions are taking
place due to high bid-ask spreads in 2022.5 As the market 20%
0.5x
bottoms and a price floor is created, we expect increased
activity in both secondary markets and in M&A activity,
0.0x 0%
which will help return some capital to LPs, continuing

2007

2018
2000
2001
2002
2003
2004
2005
2006

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

2019
2020
2021
2022
2008
2000
2001
2002
2003
2004
2005
2006
2007

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
the venture cycle.
Notes: 1) This analysis is for demonstration purposes and has two assumptions: One the analysis assumes an investor (LP) is capable of choosing a cohort with a high enough return to
produce a Sharpe ratio greater than one, two the analysis also assumes the standard deviation of returns (risk) is constant across the venture asset class. 2) From Bloomberg. 3) Total
value of fund’s investment and distributions to LPs relative to how much LPs have paid in. 4) How much a fund has returned to LPs relative to the amount paid in by LPs. 5) According to
Nasdaq Private Market (NPM) commentary. 6) A fund is considered acceptable if its returns are high enough to generate a Sharpe ratio greater than one.
State of the Markets H1 2023 10
Source: Preqin, US Board of Governors of the Federal Reserve System, Nasdaq Private Markets and SVB analysis.
 US VC Dry Powder by Average Age, Percentage from Past Vintages and Fund Strategy
Weighted Average Age (years) Percent of Dry Powder More than: 4 vintages old 3 vintages old 2 vintages old
$300B $300B
Pre-
80% Using past cycles as a gauge, if we head into $21B 2019
2.5 a recession, we can expect the average age $29B 2019
US VC fundraising had a record year in 2022 with $139B of 70% 2.4 2.4 2.4 of dry powder to increase with newer
funds closed. However, fundraising all but came to a halt 2.2 2.2 2.2 vintages waiting longer to deploy. $33B 2020 $140B
60% General
in Q4, which accounted for just 6% of the year's total. This 2.1
drop in fundraising in Q4 was also characterized by a 1.8 1.9
50% 1.7
decrease in the number of emerging managers (EMs)2 1.7
funded. While 2021 was a record year for EMs, as we enter 1.5 1.5 1.5 $123B 2021
40% 1.5 1.4 1.4 $38B Late-
a period of economic uncertainty, LPs are allocating more 1.4 Stage
1.3
heavily to established funds. This also means capital is 30% 1.2
concentrated in the hands of fewer managers. $1B+ funds
20% Early-
accounted for 52% of all capital raised in 2022, up from $98B
Stage
just 37% in 2021. $96B 2022
10%
Despite a slowdown in US VC fundraising, there is a $23B Seed
record level of VC dry powder in the ecosystem. This has 0%
led to the amount of dry powder per VC-backed company By Vintage Year By Fund Strategy
increasing by 119%, even as the number of US VC-backed
2022 Actual Dry Powder
companies increased 20% in the last five years.1 In other
words, today there is roughly $6.8M in US VC dry powder US Dry Powder per US VC-Backed US VC Fundraising
available per company, compared to just $3M in 2018.1
This means there is more capital available for companies
Company1 Percentage of Funds Closed that Are Emerging Mangers
Total Funds Closed Total Value of Funds Closed
to grow. While there is hesitancy to deploy capital in the
current market when price discovery is still happening, the $6.8M
1,229
incentive structure of VC is aligned to encourage investors
to deploy capital due to the fact that most managers do
not make management fees if they do not deploy.
$4.5M
However, in the aftermath of recessions dry powder is 74% 76%
$4.0M 74%
deployed more slowly, as evidenced by the increase in 81%
$3.3M 651
average age and the share of dry powder that belongs to $3.1M 68% 69% 643
$2.7M 507
older fund vintages. If the economy continues to tip down $2.6M 722
$2.4M
in 2023, we can expect delayed deployments leading the 636
record dry powder to sit on the shelf a little longer. 66% 66%
438
344
$36B $44B $43B $62B $59B $88B $136B $139B

2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022

Notes: 1) Due to poor tracking of company failures, we defined a US VC-backed company as a US-based company that has raised a venture
round in the last five years as a rough proxy for the total number of VC-backed companies. 2) Emerging managers defined as a manager that
has closed three or fewer funds, and the fund is under $200M.
Source: Preqin, PitchBook and SVB analysis. State of the Markets H1 2023 11
State
The of
Future
the Markets
of Climate
H1 2023
Tech 12
 Late-Stage Tech Quarterly VC Investment Change in Tech Post-Money and
and Median Pre-Money Valuation1 Recent IPO Market Caps YoY1, 2
2015-2019 2021 2022 Change YoY (Q4 2021-Q4 2022) Q4 Median Valuation or Market Cap
$180M
12%
There is a clear relationship between the amount of capital Q4 $55M $96M $1.4B
$160M
chasing deals and the valuation those deals receive. More

Median Pre-Money Valuation

capital was deployed in 2021 than any prior year by a factor $140M Reset to normal as Q2
investors pull back and Q1
of two. This pushed valuations to new highs. But as near-zero $120M Seed Early-Stage Late-Stage IPO
capital becomes scarce. Q3
interest rates and roughly $5T in government stimulus worked
$100M Q2
through the US economy, inflation emerged as the predominant Q1
concern. The Fed pumped the breaks, raising interest rates at $80M Q4 $16M
the fastest pace since 1990, which sent public markets into a Q3
$60M Abundant low-cost capital -29%
risk-off cycle. At the end of 2022, the median market cap of and intense competition
2021 US tech IPOs was down 63%. Late-stage valuations, $40M
for deals led to high
which are most closely tied to public comparables given they $20M valuations.
are closer to an exit, saw their post-money valuations fall steeply
$0M -56%
in the back half of the year, ending up at pre-2021 levels. $0B $10B $20B $30B $40B $50B -63%
The early-stage has been more sheltered from the valuation Capital Invested per Quarter
correction, but not entirely. While valuations haven’t dropped
as dramatically, our early-stage practice has reported seeing
higher liquidation preferences. While these preferences protect Months Required to Grow into Last Post-Money Valuation by Series for US
founders from the bad optics of a down round, they make it
harder to bring in new investors who will often insist on the Tech Companies that Raised in 2021 Given Current Valuation Levels1, 3
same terms and make it harder to attract talent with equity- Middle 50% of Companies Median
based compensation. Lastly, capital is harder to come by, so
not every company that needs capital has been able to raise,
24
24%
which, through survivorship bias, keeps valuations higher. of companies can grow into last
19 post-money valuation given current
To raise at an up round while valuations are falling, companies cash runway and growth rate.
must grow into their new valuation at their new (lower) revenue 14
13
multiple. While revenue growth rates are moderating, many 12
companies that raised in 2021 have already grown into their
9
valuations, based on implied revenue multiples for current 7
valuations levels. The median Series A company that raised in
2021 requires just three months to grow into its last valuation.
3 7
25% 51%
However, the median late-stage company (Series D+) requires of companies have less of companies have already
13 months to grow into their last valuation, putting these late- 5 runway than the time it grown into their 2021 post-
3 would take to grow into their money valuation.
stage companies at higher risk of needing to raise a down 2 last post-money valuation.
round. Given these dynamics, SVB has seen more tech Series A Series B Series C Series D+
companies seeking debt as a tool to extend runway.
Notes: 1) Tech defined using SVB taxonomy. 2) Change for private market rounds assessed using the change in median valuations between Q4
2021 and Q4 2022. IPO market caps assessed between 1/1/2022 and 12/31/2022 using US VC-backed tech IPOs on major exchanges. 3)
Calculated an implied multiple based on current valuations levels, then calculated the time to grow into those implied multiples while maintaining
the same valuation given Q4 2022 growth rates; analysis uses current revenue run rate for the quarter.
Source: PitchBook, SVB proprietary data, S&P Capital IQ and SVB analysis. State of the Markets H1 2023 13
 US Tech Median Revenue Multiple by Annual Revenue Run Rate1, 2, 3
50x
-17%
over 2 quarters
45x
40x
Growth in revenue multiples happened slowly over the last
few years until a switch flipped in 2021 and multiples ticked 35x
up steeply. Take, for example, US tech companies with less 30x
than $10M in annual revenue run rate. Between Q1 2018 and 25x -42% -46%
Q4 2020, the median multiple for these companies grew just over 2 quarters over 4 quarters
20x
28% from 21x to 27x, then increased by 85% to 50x over the
next four quarters. The multiple expansion is indicative of 15x
three fundamental shifts. First, the embrace of technology 10x
during the pandemic catapulted technologies like digital 5x
wallets decades ahead in terms of user adoption. Second, 0x
record-high investment levels increased demand for private

Q1

Q3
Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q1

Q3

Q1

Q3

Q1

Q3
companies; just as public company multiples climb with
growing investor demand, so do private company multiples. 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
Finally, in the frenzied VC investment environment of 2021, $0-$10M $10M-$25M $25M-$50M
investors were less sensitive to price. In conversations, many
investors mention the fear of missing out as a driving force
behind 2021 investment. Median Revenue Multiple for Companies US Tech Median YoY Revenue Growth
However, 2022 marked a departure from the continual
multiple expansion. Three primary factors led to the decline in with Less than $10M in Revenue1, 2 Rate by Annual Revenue Run Rate3, 4
revenue multiples of private companies. First, capital invested Frontier Tech Fintech Enterprise Software $0-$10M $10M-$25M $25M-$50M
into US VC-backed companies decreased 31% YoY. Second, Consumer Internet
2021 US VC-backed tech IPOs’ enterprise value to next twelve 80%
months (EV/NTM) revenue multiples fell 72% in 2022 (which is 90x
considered a good approximation of a private market annual 70%
80x
recuring revenue (ARR) multiple). Third, revenue growth rates 70x
for US VC-backed tech companies declined for companies of 60%
60x
all sizes as they cut net burn and focused on profitability over
50x 50%
growth. Here again, multiples saw the steepest and quickest
declines among larger companies that are closer to an exit, 40x
40%
while early-stage companies have seen slower declines. 30x
20x
Beyond the size of companies, multiples have been impacted 30%
differently due to the sector of tech companies. Frontier tech 10x
companies. for example, take longer to generate revenue, so 0x 20%
mature companies can have relatively low revenue leading to Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
high multiples for companies with less than $10M in revenue. 2021 2022 2018 2019 2020 2021 2022

Notes: 1) Revenue is defined as annual revenue run rate for a given quarter. 2) Revenue multiple defined as post-money valuation divided by
annual revenue run rate; uses trailing 3-quarter median. 3) Tech defined using SVB’s proprietary taxonomy. 4) Using trailing 3-quarter median.
State of the Markets H1 2023 14
Source: SVB proprietary data and SVB analysis.
 Q4 2022: Select Metrics for US Tech Companies by Annual Revenue Run Rate1
Companies that Companies that Didn’t Raise in 2022 and Companies that Are Growing Faster, Are Companies that are Growing Faster,
Raised in 2022 Have Less than 12 Months of Cash Runway Less Profitable and Less Efficient are More Profitable and More Efficient

Median Revenue Growth Rate Median EBITDA Margin Median Burn Multiple2
With US VC investment down 31% YoY, capital is now a
scarce resource and harder for companies to raise. One
13% -63% 1x
narrative that’s been repeated in market is that investors $25M-$50M
are seeking to allocate capital to companies that are still 30% -48% 1x
growing, are efficient and have a path to profitability.
However, in an analysis comparing (1) companies that 29% -74% 2x
raised in 2022 and (2) companies that need to raise in $10M-$25M
41% -95% 3x
the next 12 months and didn’t raise in 2022, this trend
hasn’t played out in the data. For companies under
24% -291% 4x
$25M in annual revenue, we see that those that raised in $0-$10M
2022 were less profitable (had a lower Earnings Before 54% -384% 5x
Interest, Taxes, Depreciation, and Amortization (EBITDA)
margin) and were less efficient (had a higher burn
multiple) but had significantly higher revenue growth
rates. This suggests that while investors may be looking
more at unit economics and profitability, growth is still
the predominant factor in determining a company’s
ability to raise.
Change in Net Burn: US Tech Companies Cash Runway in Q4 2022 for
When looking at companies under $25M in revenue, that Raised in 2022 by Revenue Run Rate Companies that Raised in 2022
as a result of the low efficiency and profitability, the Increased or Kept Net Burn Constant YoY Decreased Net Burn YoY Median Middle 50% of Companies
cash runway isn’t much higher than that of all tech
Decrease Net Burn YoY for All US VC-Backed Tech Companies
companies. However, larger companies with $25M-
$50M in revenue are far more capitalized with a median 29
of 21 months of runway. This is in part due to their higher 33% 45% 38%
24
profitability and efficiency.
20 21
As companies scaled and had between $25M-$50M in
annual revenue, companies that raised had very strong 15
growth, but they also were more profitable and had 66% 13
73%
slightly lower burn multiples compared to those that 83%
didn’t raise. This indicates a far higher bar placed on
later-stage companies, as they not only need to have
strong growth, but also higher profitability and efficiency. 34% 9 9
17%
27% 6

$0-$10M $10M-$25M $25M-50M

$25M-$50M $0-$10M $10M-$25M $25M-$50M
$25M-50M

Notes: 1) Revenue is defined as annual revenue run rate for a given quarter. 2) Net burn divided by net new revenue; net new revenue
calculated using annual revenue run rates for a given quarter.
Source: SVB proprietary data, PitchBook and SVB analysis. State of the Markets H1 2023 15
 Average Number of Days Between Median Number of Tech Subsectors1
US VC Deals for Select Firms Targeted by the Top 100 US Investors2
Median Middle 50% of Top 100 Investors

The frenzy to get deals done in the fast-paced funding 16 40

environment of 2021 shifted the balance of power The most active US investors
narrowed their focus to fewer
squarely toward founders. VC investors who were used
12 subsectors in 2022.
to taking their time on due diligence found themselves The pace of 30 -13%
investment has 24
competing with a line of other investors to land the
slowed since Q2. 21
most promising tech companies. With founders in 8 19 20
control, VCs who offered term sheets fastest often 20 17
landed the deal.
4
In 2023, VCs are in the driver’s seat again, and they’ve
10
taken their foot off the gas. Industry-leading VC firms
dialed back the pace to 2020 levels or slower. In Q4, 0
Sequoia Capital completed a deal every 9.1 days, down Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
from every 3.5 days the year prior. Tiger Global, the 0
2020 2021 2022 2018 2019 2020 2021 2022
hybrid investment firm that drew attention for its fast-
paced dealmaking and large investments in 2021, also
drew back, completing deals every 7.9 days in Q4, down
from every 2.7 days in Q4 2021. Average Months Elapsed3 Between Rounds by US VC Series Raised4
In addition to slowing the pace of dealmaking, investors
Seed to Series A Series A to Series B Series B to Series C Series C to Series D
also refocused on their thesis, tightening the scope of
their investments, which broadened in 2021. The most
active US investors targeted 13% fewer subsectors in

22.1
2022, narrowing the median number of subsectors 14.6%

22.0
18.9%
represented by investments from 24 to 21.

21.3
21.2
22.4%

20.9
The result of this slower pace is that companies can 27.4%

20.4
expect to wait longer between rounds. Across all stages,

19.5
the elapsed time between funding rounds for companies

19.4

19.4
19.4
19.3

19.2
19.1

19.1
receiving VC checks jumped about four months over the

18.9

18.9
18.9

18.8
18.6
18.6

18.6
18.5

18.5
last two years. The most significant change occurred at

18.3

18.1
18.0
the later stage. The average time between Series C and

17.5
17.4

17.4
Series D deals for companies closing in Q4 2022 was
20.9 months, up 27% from 16.4 months in Q1 2022.

16.6
16.6
16.4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2021 2022 2021 2022 2021 2022 2021 2022

Notes: 1) Among 70 tech subsectors classified by SVB taxonomy. 2) Determined by total VC deal count since 2018.
3) Three quarter rolling average of the time elapsed between rounds. 4) Analysis excludes companies with add-on deals between rounds. State of the Markets H1 2023 16
Source: PitchBook, SVB proprietary data and SVB analysis.
 Share of CVC Deals Done by the Top 15 CVC Participation Rates
CVCs Each Year
60% 26%
3.2x increase in the number of 25%
CVC funds making investments 24% 24%
55% 24% 24% 24%
In the last decade, corporate venture capital (CVC) has in US companies (2010-2018)
gone mainstream as the number of investors booms. 50% 21%
Despite a tough
Historically, this investor group was dominated by a environment, no
small group of legacy tech companies, with the top 45%
appreciable drop in
19%
93%
15 CVCs accounting for 55% of all deals. But the number participation from 18% Growth in VC deals
40% CVC is dominated by
of active CVCs has skyrocketed, and a long tail of legacy tech companies
less-active CVCs. 16% since 2012
corporate investors has emerged. Today the top 15 35% such as Intel, Comcast
account for just 29% of all deal activity. While some in and Qualcomm. 194%
the industry have hypothesized that top players would be 30%
Growth in CVC deals
more likely to stick around during this cycle, there has since 2012
not been an appreciable change in the top 15 CVCs 25%
share of deal activity in 2022. This indicates that the long 20%
tail of investors (91% of which do fewer than 10 deals

2018
2010

2011

2012

2013

2014

2015

2016

2017

2019

2020

2021

2022

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
per year) have not slowed their pace more significantly
than top players. As of Q4, CVC participation rates
remain high, accounting for 26% of US VC deals.
This is not to say there are no differences between top- US VC Deal Activity Index by Investor Type1 Share of CVC Deals by Stage
tier funds and the rest of the pack. From a recent survey
Traditional VCs Top-Tier CVCs: “Bellwethers”2 All Other CVCs 2021 2022
of 164 CVCs, we defined a group of top-tier investors
“bellwethers” that have at least $500M assets under
180
management (AUM), deploy at least $100M annually and
have a high reputation in the industry. These bellwethers Smaller, often less
established CVCs 33%
closely tracked traditional VCs in terms of deal-making, 160
invested at a higher 30%
while non-bellwether firms increased their rate of deal rate during investment
activity far more significantly in 2021 than traditional 140 27% 27%
boom of 2021. 25%
VCs and have since returned to being in line with
traditional VC. 21% 22%
120
As with traditional VC investors, in the face of mounting
economic uncertainty, CVCs shifted focus to early-stage 100 15%
companies that have a longer time to exit and may
ultimately benefit from the current environment due to 80
the availability of talent and decreased competition. The
share of corporate deals going to Seed and Series A
60
deals has increased by nine percentage points to 51% of
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Seed Series A Series B Series C+
all deals between 2021 and 2022.
'21 '21 '21 '21 '21 '21 '22 '22 '22 '22 '22 '22

Notes: 1) Index uses trailing six-months’ deal activity. 2) Bellwether defined as a CVC with at least $500M AUM, deploy at least
$100M per year and have a strong reputation in the industry.
Source: PitchBook, SVB & Counterpart Ventures CVC survey and SVB analysis. State of the Markets H1 2023 17
 Share of US VC Investment in Crypto Estimated Quarterly Commits
and the Price of Bitcoin1 by Blockchain Developers2
Percentage of VC Dollars Percentage of VC Deals 2.5M 2.3M Blockchain
Bitcoin Price (USD)
development
Crypto was the star tech sector of 2021, but falling asset 8% $60K is down 65%
2.0M
prices and the collapse of several high-profile projects made since Q2 2021.
7%
for blinding headwinds in 2022. The price of Bitcoin fell 65% $50K
from Q4 2021 to Q4 2022, draining liquidity from the market 6% 1.5M
and sapping the public interest that had fueled last year’s $40K
5%
investment frenzy. During the run-up of 2020 and 2021, crypto
took a larger share of the VC pie, jumping from 1.5% of US 4% $30K 1.0M 0.8M
VC investment to 6.9% at its peak. Now the trend is reversing, 3%
with crypto accounting for 4.8% of VC investment in Q4 2022. $20K
2% 0.5M
It could fall lower as the industry grapples with the fallout from
$10K
the November 2022 collapse of the crypto exchange FTX. 1%
0.0M
The company’s $32.5B bankruptcy constitutes the largest 0% $0K
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
loss in value for any private VC-backed company on record — Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
nearly four times greater than the Theranos fraud. Eighty-five 2020 2021 2022
2019 2020 2021 2022
VC investors — including leading firms such as Sequoia,
SoftBank and Lightspeed — invested $2.7B into FTX over the
last four years. In turn, FTX and its affiliate hedge fund Notable VC-Backed Company Collapses FTX VC Investors and Estimated Losses3
invested in 235 startups, including 22 companies valued over Size of Investment Number of Deals: 1 2 3 4 5
Fraud Non-Fraudulent
$1B. The founders of these companies now face the task of
untangling from FTX, while the industry faces the more Theranos FTX Quibi LendUp Katerra
daunting challenge of repairing public confidence. FTX 85 firms
customers may be owed more than $8B in lost deposits, $35B invested $2.8B
according to the US Commodities Futures Trading
$30B
Commission.
State and federal regulators have ramped up scrutiny on $25B The FTX collapse from a $32.5B
crypto companies. In January 2023, the Securities and valuation is the largest mark-
Valuation

$20B down for any pre-exit VC-

Exchange Commission (SEC) charged crypto exchange Gemini
and crypto lender Genesis with selling unregistered securities, backed company on record.
$15B $214M
while the Department of Justice (DOJ) charged crypto
exchange Bitzlato with unlicensed money transmitting. $10B
Ultimately, tighter regulations may help the industry. In a $280M
January 2023 letter announcing layoffs, Coinbase CEO Brian $5B
Armstrong cited “emerging regulatory clarity” as a long-term
benefit to Coinbase. “Progress doesn’t always happen in a $0B $275M
00 11 22 33 44 55 66 77 88 99 10
10 12
11 12
12 13
13
straight line,” he said.
Years Since First Funding
Notes: 1) Bitcoin price displayed as a monthly average of the daily settlement price. 2) Quarterly sum of daily coding commits to blockchain networks.
3) Includes FTX, and FTX US. Losses estimated based on public disclosures from investors, round size and number of investors per round.
Source: PitchBook, Artemis.xyz and SVB analysis. State of the Markets H1 2023 18
State
The of
Future
the Markets
of Climate
H1 2023
Tech 19
 Effect of Inflation on Cash Runway for Share of US VC-Backed Tech3 Companies
US VC-Backed Tech3 Companies4 with Less than 12 Months of Runway
Months of Cash Runway Months of Cash Runway Frontier Tech Consumer Internet
Lost Due to Inflation Fintech Enterprise Software
Months of Cash Runway
A new reality cemented itself in 2022. Public markets began (Inflation Adjusted)
75%
to deteriorate, exit markets came to a screeching halt, 18 2.5 While the share is
fundraising slowed and US VC investment fell to approximately 16 increasing, it is in line
65% 62%
$38B in Q4 2022 — the lowest quarterly level since Q2 2020. 2.0 with historical norms
14
With capital no longer a commodity and tech demand falling, pre-pandemic.
12 55%
startups have had to pivot by cutting spend to extend runway. 1.5 51%
However, unlike the last downturn at the onset of the 10
46%
pandemic, there are different factors at play — namely 8 45%
1.0
inflation. Inflation’s negative impact on cash runway has too 6
often been underappreciated. With the consumer price index 4 41%
0.5 35%
continuing to hover around 7%, startups are losing over a 2
month of runway due to elevated inflation. 0 0.0 25%

Q4 '17

Q2 '18

Q4 '18

Q2 '19

Q4 '19

Q2 '20

Q4 '20

Q2 '21

Q4 '21

Q2 '22

Q4 '22

Q4 '17

Q2 '18

Q4 '18

Q2 '19

Q4 '19

Q2 '20

Q4 '20

Q2 '21

Q4 '21

Q2 '22

Q4 '22
For startups that benefitted from the enormous fundraising
waves of the last few years and hold an abundance of cash,
this may prompt them to explore higher yielding assets to
offset the erosion of purchasing power. While this may be
enticing, especially in an environment where inflation may Cash Runway for US VC-Backed Tech3 Companies vs. Length of Notable Downturns
erode runway, liquidity reigns supreme. The purpose of raising
Share of Companies by Cash Runway Bucket US Recession Length
VC is to have money when the company needs it.
16%

Share of US VC-Backed Tech Companies

On the other hand, for companies that don’t have ample cash Dot Com 1970’s Energy & Global Great
at their disposal, the situation is much more dire. As the Bubble Inflation Crisis Financial Crisis Depression
14%
market environment remains uncertain, investors have
continued to pull back, cutting off critical oxygen for 12%
companies to survive. This is ever more important as our
10% Median
proprietary data shows an increasing share of companies with
Since
less than 12 months of cash runway. The median cash runway 8% 1900
for companies has fallen from 16 months in Q4 2021 to just
over 12 months as of Q4 2022.1 This is just shy of the median 6%
length of a recession.2 However, if this current downturn 4%
were to mimic the GFC or 1970s energy crisis — the latter of
which has a number of parallels to today’s environment — 2%
startups would need closer to 18 to 24 months of runway to
0%
survive. Nonetheless, as more companies reach the end of
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 60+
their cash runway, we expect VC activity to increase as 10th Percentile
companies start to accept lower valuations. Months of Cash Runway & Length of Downturns (Months)
25th Percentile
Median 75th Percentile 90th Percentile
Notes: 1) Based on SVB proprietary data. 2) Median length of a US recession since 1900. 3) Tech defined using SVB taxonomy. 4) Analysis assumes only
operating expenses at each quarter are impacted by the annual inflation percentage at the respective quarter. No adjustments are made to revenue.
Source: US Bureau of Labor and Statistics, National Bureau of Economic Research, S&P Capital IQ, SVB proprietary data and SVB analysis. State of the Markets H1 2023 20
 US VC-Backed Tech: Net Burn Index1 Percentage of US VC-Backed Tech
Fintech Consumer Internet Frontier Tech Companies Decreasing Net Burn YoY2, 3
Enterprise Software
300 All Sizes Annual Revenue $0-$10M $25M-$50M
Abundant Capital COVID-19 Abundant Capital Run Rate $10M-$25M
Spending Cuts Capital Scarcity
The last decade in the innovation economy can be 70%
250
delineated into four distinct periods. First, the pre-COVID-19 60%
period was characterized by the longest bull-run market in
history with abundant capital and strong VC investment 200 50%
hitting record levels eight years in a row. This period filled the 40%
pockets of many companies, allowing them to move fast and
burn capital quickly to scale. The second period started in 150 30%
March 2020 when the World Health Organization (WHO)
20%
declared COVID-19 a global pandemic. Public markets 100
panicked and companies quickly reacted by cutting burn to 10%
ensure ample cash runway for a potentially bumpy road
Indexed to 100 0%
ahead. The third period started in 2021 when the innovation 50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
economy entered a frenzy of activity with a doubling of VC Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
investment in one year, increasing competition among 2018 2019 2020 2021 2022
2018 2019 2020 2021 2022
investors and growing net burn rates. Finally, in 2022 we
entered the fourth period, characterized by monetary
tightening, a risk-off mindset in public markets and
rationalization in private markets. Venture investment
Median EBITDA Margin for US Backed Additional Months of Cash Runway
slowed, and in time companies cut net burn focusing on Companies with $10M-$25M in Revenue3 from Decreasing Net Burn
improving efficiency, getting to profitability and extending
cash runway. Nearly 40% of all pre-profit US tech companies Frontier Tech Fintech Enterprise Software
have reduced net burn. These reductions have started to Consumer Internet All Sectors
A company is better off
motorize into moderate improvements in profitability in Q4 2020 2021 2022 cutting net burn with
2022 as measured by EBITDA margins. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 more runway than
0% 70 taking a deeper cut
There are also some important nuances in sectors. Fintech,
with limited runway.
consumer internet and enterprise software all started to see -20% 60
improvements to net burn starting in Q3 2022. However, -40% -75%
given the more hardware-intensive nature of frontier tech, 50 -70%
-65%
cutting burn takes longer. It isn’t as simple as cutting cloud -60% 40 -60%
computing spend, for instance. Therefore, Q4 was the first The Median Tech Company -55%
-80% 30
time net burn dropped for frontier tech companies. that Decreased Net Burn 1 -50%
-100% 20 -45%
Ultimately, while cutting company spending can be painful, -40%
we believe the companies that do will become more -120% 10 -34%
-35%
efficient, more profitable and more ready for the demands -140% 0 12.7 -30%
placed on public companies. 24
18 -25%
12
Notes: 1) Median net burn on a quarterly basis by tech sector indexed to 100 in Q1 2018. 2) Tech defined using 6
SVB’s proprietary taxonomy. 3) Revenue is defined as annual revenue run rate for a given quarter.
Source: SVB proprietary data and SVB analysis. State of the Markets H1 2023 21
 Tech Companies Reporting Layoffs Hiring Growth Rates YoY and Revenue per
Number of Tech Companies Employee for Notable Tech2 Companies3
Number of Tech Companies that Already Reported Layoffs since COVID -19
2021 2022
Share of Q4
2022 Employees 250%
One of the main areas grabbing headlines in today’s Laid Off by Tech
environment is headcount. Following a pandemic-related 436

Employee Growth Year-Over-Year

Company 200%
411
hiring boom that led to record employment, rising wages
and surging headcount, companies have started to pull 150%
back the reins as the new reality sets in. Tech layoffs (both 298
in terms of the number of companies reporting layoffs and 100%
the number of employees being let go) in Q4 2022 surged
to the highest level since the onset of the pandemic. 50%
Furthermore, more companies are doing second and
124 0%
third rounds of layoffs.
91
Prominent executives of notable public tech firms have 47 -50%
21 33
openly admitted to hiring too fast, citing misguided 3 6 4 9 2 7 1 4
optimism in tech demand and economic growth post- -100%
pandemic. Today, the focus is on the need to reduce costs Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 $0.0M $0.5M $1.0M $1.5M $2.0M $2.5M $3.0M $3.5M
given the current landscape and even proactively using the Revenue per Employee
current environment to cut underperforming employees.
In the extreme, corporate restructuring has taken place, Share of US Tech2 Companies with Increasing Payroll QoQ
such as Elon Musk’s recent “house cleaning” of Twitter,
Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022
which saw nearly half of its employees depart the firm.
78%
Ripple effects have cascaded throughout private 76% 78%
companies, too. Across major tech sectors, SVB proprietary 70% 71% 71% 73% 70%
67% 68% 69% 68%
67%
data shows that the share of companies increasing payroll 63%
61% 60% 60%
has declined by more than 20 percentage points on average 58% 59%
55% 57% 55% 56%
since the peak in late 2021. Additionally, median growth 52% 51% 51% 51%
49%
rate of payroll spend across tech subsectors has fallen to
low double digits YoY in Q4 2022, a stark contrast to north
of 50%+ YoY median payroll spend at the same time last
year.1
While layoffs may bring challenges for the tech workforce in
the near term, it could serve as a potential opportunity for
current startups to scoop up great talent at lower costs. It
may also lead to the creation of new companies as former
tech employees look to build something on their own.
Fintech Enterprise Software Frontier Tech Consumer Internet
Notes: 1) Based on SVB proprietary data on median payroll spend. 2) Tech defined using SVB’s proprietary taxonomy. 3) Annual revenue and employee
data for 2021 based on reported figures from the respective company’s SEC filings. Revenue data for 2022 based on the annualized latest available
quarterly data. Employee data for 2022 estimated based on data from Layoffs.fyi, company press releases and news articles. Data as of 1/5/2023.
Source: Layoffs.fyi, S&P Capital IQ, SVB proprietary data and SVB analysis. State of the Markets H1 2023 22
State
The of
Future
the Markets
of Climate
H1 2023
Tech 23
 Total Post-Money Valuation by Quarter for US VC-Backed Exits (Excluding Healthcare)
Total Post-Money Valuation Percentage of Exit Value from LBOs and M&A

87% $272B
77%
As volatility reintroduced itself and public markets softened
in 2022, IPOs and de-SPACs came to a screeching halt. After 67% $208B
63%
a massive year for public exits in 2021 and three successive 60%
$172B $173B
years of private exits taking a smaller share of total value,
the script has flipped. Acquisitions have started to take the $1.8T $128B $130B
lion’s share of deals — albeit at a smaller absolute level Total post-money valuation of
US VC-backed exits in the last $99B
relative to last year — punctuated by deals such as Nuance
10 years (excluding healthcare)
Communications ($19B), Deliverr ($2B) and Xandr ($1B).
While some deals have been lauded as successful strategic $56B 30% $53B
$37B 24% 13%
mergers, such as Adobe’s $20B announced acquisition of $26B $27B $21B $30B
$20B $13B $18B $17B $18B $18B $21B $17B $11B $21B $19B $13B
Figma at over 50x revenue, the reality is that most private $11B $10B $17B $10B $10B $5B
acquisitions will be under circumstances of duress as
investors pull back and runway shortens. This last point Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
rings especially true as proprietary data shows nearly half
of US private tech companies have less than 12 months of 2015 2016 2017 2018 2019 2020 2021 2022
runway — a jump of 10 percentage points from Q4 2021.
However, should public markets open up this year, there Distribution: Change in EV/NTM US VC-Backed Unicorn Statistics
remains a massive backlog of unicorns (and potential
liquidity) ready to be unlocked. Since Q4 2021, the aggregate Revenue Multiples in 2022 for US
value of private, US VC-backed unicorns has grown over
13% to $2.3T, while the aggregate number of private, US
VC-Backed Tech IPOs3 41%
47% Of Unicorns Were
Created in 2021

VC-backed unicorns has jumped nearly 30%.1 As these Share of IPOs 38%
companies remain private longer, they have time to achieve
the best operating metrics possible before a potential exit.
$135M Median Annual
Revenue Run Rate

On the other hand, investors are unable to realize gains, so 50%

there is mounting pressure for companies to exit. of recent IPOs’ EV/NTM
revenue multiples
$2.3T 6% Of Unicorns
Are Profitable
Should public markets remain depressed, valuation declined more than 72%. Value of US VC-
multiples for public companies will continue to remain
muted. However, this isn’t all doom and gloom as this also
provides an opportunity for investors to scoop up great
15%
-55%
Backed Unicorns Median EBITDA
Margin

companies at lower prices. Look no further than Thoma

Bravo’s acquisition of Coupa. With over $1.8T in global VC
4% 2% 10% Of Unicorns Are at
Least 13 Years Old
and PE dry powder, there remains ample cash ready to be
put to use.2 Increased 0%-25% 25%-50% 50%-75%
Percentage Decrease
75%-100%
8 yrs. Median Age of
US Unicorns

Notes: 1) Data as of 12/31/2022 and subject to change based on data updates by data provider. 2) Data as of 1/23/2023 and subject to change based on
data updates from data provider. 3) Tech defined using SVB’s proprietary taxonomy; enterprise value to next twelve months (EV/NTM) revenue.
Source: PitchBook, S&P Capital IQ, Preqin, SVB proprietary data and SVB analysis. State of the Markets H1 2023 24
 Valuations of Late-Stage Tech VC vs. Recent Distribution of Late-Stage VC-Backed
Tech IPO Index3, 4 Tech Companies by Date of Last Round4
Late-Stage VC Valuations Index Recent Tech IPO Index

Since October 2022, the decline in late-stage tech valuations

110
9% 33%
100 of late-stage companies of companies last 27%
has begun to mirror the decline in recent US VC-backed tech
were priced in H2 2022 valued at market peak
IPOs. This suggests that late-stage tech valuation levels are 90
starting to find the bottom (assuming public markets don’t
continue to correct). However, 33% of late-stage private tech
80 10% 9%
H2
of recent IPOs are down
companies raised their last priced round during the market 70 at least 90% for the year 33%
peak in 2021. So many companies have yet to face the new
fundraising environment. The dynamics of price discovery are 60
a gating factor for M&A activity. Many buyers are looking to 50 18% H1
acquire companies at a discount, but many sellers are still tied 12%
40 9%
to their 2021 valuations since they have not yet had to reprice. 5% 6%
3% 4%
Given the robust cash runway and the use of alternative 30
financing mechanisms, many late-stage companies are simply Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Pre-2015 2016 2017 2018 2019 2020 2021 2022
waiting as long as possible to raise. As such, M&A activity of US '22 '22 '22 '22 '22 '22 '22 '22 '22 '22 '22 '22
VC-backed companies by strategic acquirers has declined 57%
YoY.
Yet another gating factor for M&A activity is a tightening debt US Leveraged Buyout Loan Volume Key Metrics for Recent US VC-Backed
market, not only due to rising rates but also a lower risk
appetite. For example, Leveraged buyout (LBO) debt in Q3 2022 $200B Tech IPOs4, 5
had an average original issue discount of 92.2 cents on the $180B Middle 50% of IPOs Median
dollar vs. 99.2 in January 2022 banks are selling debt at a higher
discount.1 As a result of these dynamics, Morgan Stanley is set $160B 35 96%
to lose $500M on the Twitter deal,2 and debt providers may be $140B
wary of financing other large transactions. We expect a higher
percentage of equity in deal capital structures. Some PE funds
$120B GFC 52%
are already announcing deals without debt financing, such as $100B of companies have
20
Francisco Partners, Thoma Bravo, and Stonepeak Partners. -2% market caps below
$80B
These funds have relied on equity from record dry powder to get their last private
$60B valuation.
deals done.
$40B
Finally, relatively low prices among recent tech IPOs may lead
to PE investors taking public companies private. For recent tech $20B
9 -55%
IPOs, the median enterprise value to next twelve months $0B Remaining Months Change from Last Private
revenue multiple fell 72% in 2022, and 52% of tech companies Cash Runway Without Valuation to Market Cap
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
that went public between 2020 and 2021 are trading below their a Capital Injection as of 12/31/2022
last private valuation.
Notes: 1) Insufficient data to calculate Q4 2023. 2) As reported by Bloomberg. 3) US tech late-stage VC valuation index calculated as median post-money valuation over
the last 90 days indexed to 100; US VC-backed recent tech IPO index calculated as the total market cap of US VC-backed tech IPOs that exited on major US exchanges
between 2020 and 2021 indexed to 100. 4) Tech defined using SVB’s proprietary taxonomy. 5) IPOs on major US exchanges that exited between 2020 and 2021.
Source: PitchBook, S&P Capital IQ, Leveraged Commentary & Data, Bloomberg, SVB proprietary data and SVB analysis. State of the Markets H1 2023 25
State of the Markets H1 2023 26
 Change in Notable Currencies vs. the US Dollar vs. a Basket of Foreign
US Dollar in 2022 Currencies Since 19711
Q1-Q3 Q4 -48% -33%
170
JPY -20% 11% USD
The tide has begun to shift following more than a year of a SEK -18% 6% 160 weakening
strong US dollar (USD) bull run, which saw the USD trade NZD -18% 13% 150
near a 20-year high.1 From the relative bottom in May 2021 to GBP -17% 8%
140
the relative peak in September 2022, the USD strengthened KRW -17% 13%

Index Value
EUR -14% 9% 130
over 28% compared to a basket of foreign currencies, driven
by the USD’s status as a safe haven asset and the Fed’s TWD -13% 3% 120 20-year high
ILS -13% 1%
interest rate hikes.2 However, beginning in Q4, the USD 110
AUD -12% 6%
began to soften, falling 9% from its recent peak.3
COP -11% -5% 100
While a modest decline in the broader index shouldn’t cause CNY -11% 3%
90
alarm bells to ring, it’s worth noting that looking at a CAD -9% 2%
INR -9% -2% 80
diversified index can be deceiving as not all currencies move
CHF -8% 7% 70
the same. Several currencies, both from advanced and
SGD -6% 7%

2001
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998

2004
2007
2010
2013
2016
2019
2022
emerging markets, have strengthened against the USD as
additional external factors — such as competing interest rate Foreign Currencies Foreign Currencies
Weakening vs. USD Strengthening vs. USD
hikes and macroeconomic conditions — cause disparity
among currency movements.
Further softening wouldn't be unprecedented. The USD index
Effect on Key Operating Metrics Based on Worst One-Year FX Movement Since 20004
has fallen nearly 15% several times in recent history — most Cash Runway CNY EBITDA Margin
-0.6 -4.2
recently during 2016-2018 and again in 2020-2021. However, 33 Mos. -0.6 TWD -4.3
-0.7 MYR -4.5 -25%
longer-term secular downtrends have also occurred, most -0.7 SGD -4.6
notably in the late 1980s and post-dot-com bust. Such -0.7 INR -4.8 75th
prolonged downtrends can have massive implications on key -0.7 GBP -5.1 Percentile
-0.8 PHP -5.5
startup operating metrics such as cash runway and operating -0.9 MXN -5.7
margins. -1.0 CAD -5.9
-1.1 EUR -6.1
JPY Median
Using the worst rolling one year performance since 2000 for 16 Mos. -1.1 -6.2
select currencies, our proprietary data shows that cash -1.2 SEK -6.4
-1.2 ILS -6.4 -69%
runway can be shortened by up to two months in a particular -1.4 TRY -6.6
currency due to unfavorable movements versus the USD. -1.4 IDR -6.7
-1.5 COP -6.9
Additionally, operating margins can deteriorate by almost -1.6 KRW -7.0
nine percentage points. Not proactively implementing an FX -1.6 CLP -7.0
strategy can introduce material variability in key operating -1.7 RUB -7.2 25th
-1.8 NZD -7.5
metrics — a disadvantage for startups, particularly during a 9 Mos. -1.8 CHF -7.5 Percentile
downturn. For more information on FX risk management -2.1 AUD -8.6 -129%
services, strategies and insights, visit our dedicated -2.2 BRL -8.7
resources here. Q4 2022 Months of Cash Runway Lost (Gained) Percentage Points Lost (Gained) on EBITDA Margin Q4 2022
Notes: 1) Based on the DXY. Previous high was in 5/16/2002. 2) USD return from 1/5/2021 to 9/26/2022. 3) USD return from 9/26/2022 to 1/10/2023.
4) Analysis based on proprietary data for companies with >$1M net USD sold in 2022, which reflects only the amount of USD sold versus currencies that
SVB FX is active in and may not include all of the currencies listed above. Analysis assumes FX movements only effect operating expenses.
Source: Bloomberg, S&P Capital IQ, SVB proprietary data and SVB analysis. State of the Markets H1 2023 27
 Trailing Twelve-Month US and Canada Median Pre-Money Valuations
VC Investment Index by Venture Round

$211M
$188M

$150M
US Canada US Canada

$100M
2021 2022

$80M
300

$55M
US and Canadian VC investment have trended similarly.

$50M

$43M
Trailing twelve-month VC investment peaked in early 2022

$31M
$27M
$25M
after an anomalous 2021. However, when we break down 250

$19M
$18M
the YoY changes on a quarterly basis, the US has fared far

$15M
200

$11M

$10M
$10M
worse — US VC investment fell 60% from Q4 2021 to Q4

$10M
Indexed
2022 while Canada saw only a 36% decline. to 100

$6M
150

$5M
While Canadian investment has remained more robust,
Canadian valuations have rebased far more quickly than 100
the US, even though Canadian companies typically have Q ’21 Q4 ’22 Q4 ’22
lower valuations for any given venture round. Take, for 50 Annual Investment Canada | $12.3B | $7.9B | -36%
example, companies that have raised five or more venture Run Rate US | $378.3B | $150.9B | -60%
rounds. The US saw pre-money valuations fall 30% 0
1st Round 2nd Round 3rd Round 4th Round 5th Round+

Jul '20

Jul '21

Jul '22
Nov '20

Nov '21

Nov '22
May '20

Sep '20

May '21

Sep '21

Jan '22

May '22

Sep '22
Jan '20

Jan '21
Mar '20

Mar '21

Mar '22
compared to 77% for Canadian tech companies. Despite
what valuations might suggest, Canadian companies are
not faring any worse than their US counterparts. In fact,
while revenue growth rates are falling, Canadian
companies have seen higher revenue growth rates YoY Revenue Rate for Tech Companies Net Burn Index for Tech Companies
throughout 2022 than US companies of the same size.
with $0-$10M in Annual Revenue1, 2 with $0-$10M in Annual Revenue1, 3
Canadian companies are generally burning less cash than
US companies. Since 2020 the median net burn for Canada Trailing Three-Quarter Median US Trailing Three-Quarter Median US Canada
Canadian companies was 38% less than their US
counterparts. This indicates higher efficiency for Canadian 80% 170
startups given that 2022 growth rates are similar. 70%
150
38%
Furthermore, from conversations with Canadian startups, Higher median net burn for US
many have done headcount reductions in the back half of 60%
companies compared to
130
2022 and expect net burn to fall as a result in 2023. In 50% Canadian companies between
addition to burning less cash, Canadian startups, Q1 2020 and Q4 2022 We have yet to
40% 110
especially early-stage companies, have benefited from see a meaningful
non-dilutive government funding, making private 30% reduction in net
90
investments in these companies go further. We expect to 20% burn for Canadian
see continued US investor interest in Canadian startups 70 companies.
10%
given the non-dilutive funding available, lower pricing and
high performance. 0% 50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2021 2022 2020 2021 2022

Notes: 1) Tech defined using SVB’s proprietary taxonomy. 2) Using annual revenue run rate for the quarter; metric is a trailing three-
quarter median. 3) Median net burn on a quarterly basis by tech sector indexed to 100 in Q1 2018.
Source: PitchBook, SVB proprietary data and SVB analysis. State of the Markets H1 2023 28
 European VC and PE Growth Fundraising1 European Median Pre-Money Valuation
Late-Stage/Growth Early-Stage Stage-Agnostic
250
$16B 2022 Median
Seed | $6M
$14B
Amid market uncertainties and high asset valuations, Series A | $28M
European investor interest shifted to early-stage $12B 200
Series B | $100M
opportunities, with Q4 2022 early-stage fundraising
$10B Series C | $288M
increasing by 11% QoQ. Early-stage startups are a
greater distance from public markets, so they have been $8B
150
relatively insulated and saw valuations bolstered in 2022 10%
by investor competition. The median pre-money valuation $6B
for seed-stage companies grew 32% YoY while late-stage $4B
valuations declined 5% in 2022 and are likely to continue 100
their decline. $2B

Although early-stage funding slowed down in 2022, the $B

median deal value increased by 30% YoY. This is driven by Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Indexed to 100
50
companies flocking to early-stage deals as public market 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
volatility makes late-stage deals less attractive given the
increased uncertainty of an exit. This ultimately diminishes
the short-term upside that made late-stage deal so attractive
in 2022. European Early-Stage Deal Size and Capital European VC-backed Exit Value by Type
The Ukraine war and the general macro environment has Invested Trailing Twelve Months2 & M&A Share of VC-Backed Exit Value
significantly impact on public markets, leading to a slowdown
in IPO activity. There were 13 VC-backed European IPOs in H1 Median Deal Size Early-Stage Capital Invested Buyout/LBO M&A De-SPAC IPO
2022 compared to 35 in the first half of 2021. This has led to $45B $1.80M Percentage M&A
M&A gaining a higher percentage of all exits, despite the total
value of those deals declining.
$40B 21% $1.60M $60B 79%
85%
of early-stage deals in 2022 72%
$35B $1.40M 69%
At the country level, the UK faced a difficult last year. had US investor participation. $50B
Inflation and political uncertainty coupled with high energy $30B $1.20M
costs continue to affect the economy and the tech sector. $25B $1.00M $40B
Yet, the UK tech industry demonstrated its resilience in 2022,
reaching a combined market value of $1T. With the threat of a $20B $0.80M $30B 52%
recession looming over the UK economy, we won’t see the $15B $0.60M
$20B
record investment levels of 2021. However, we do expect a
$10B $0.40M
return to pre-pandemic levels of investment as tech continues
$10B
to become increasingly entrenched in the broader economy. $5B $0.20M
$0M $0.00M $0M
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2020 2021 2022

2018 2019 2020 2021 2022

Notes: 1) By year closed. Only funds whose manager is located in Europe are included. 2) Early Stage includes Angel,
Seed & Series A. State of the Markets H1 2023 29
Source: Preqin, PitchBook and SVB analysis.
 The 25+ subject matter experts from
SVB and external organizations that
provided insights, market analyses
and guidance.

Sunita Patel Eli Oftedal Andrew Pardo, CFA Josh Pherigo

Chief Business Senior Researcher, Senior Researcher, Senior Researcher,
Development Officer Market Insights Market Insights Market Insights
supatel@svb.com eoftedal@svb.com apardo@svb.com jpherigo@svb.com

SVB Financial Group has an investment in NPM. NPM is an independent third party and is not affiliated with SVB Financial Group. State of the Markets H1 2023 30
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