Dealmaking has swung in favor of venture investors since the start of Q2 2022, owing to high demand for capital and depressed valuation multiples of recent VC-backed listings, according to PitchBook's latest Quantitative Perspectives report.

"While traditional VC firm dry powder available to startups grew in 2022 at a faster clip than any other year in the last decade and a half, the demand for that capital from startups grew even more quickly," said Parker Dean, a quantitative research analyst at PitchBook.

"This, combined with dropping entry multiples for startups, poises savvy investors flush with cash to make lucrative growth plays."
   
While the drawdown in public equities in the first half of 2021 has been significant and long-lived, the stock market declines have not been as severe as other downturns in recent memory.

The bear market has also come with a silver lining for software investors: The price-to-sales multiples for many recent public listings of software companies have shrunk considerably since late 2021. Because these multiples are a reference mark for VC-backed software deals, this is good news for GPs deploying capital into new portfolio companies in the sector.

"A reset in software startup valuations, in particular, will lead to a more-grounded market for investors looking to enter the sector as capital-hungry companies expand runway and capitalize on growth opportunities," Dean said.

Pre-money valuations of US VC-backed software companies have fallen across the board, with the steepest drop coming from the most valuable startups, the report found.

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This article originally appeared on PitchBook News