After watershed year, VC investments see steep decline in 2022

Last year’s list of the city’s most active venture capital firms highlighted the watershed deal-making of 2021, raising the question of whether the trend would last. After 2022’s turbulent market conditions, which included layoffs, rising interest rates and inflation, the answer is clear: It won’t.

Deals and dollars nosedived in 2022, with the number of deals dropping by about 30% and the amount of venture capital poured into the city’s startups was nearly halved, according to data from Crunchbase. Although venture capital slowed nationally, the declines were the largest among leading metropolitan areas, such as Silicon Valley and Boston.

While the deal count was the lowest since 2017, there was a bright spot: Investments were still higher than in 2020.

In addition to economic conditions, the drop in New York’s funding specifically could be attributed to an overall decline in funding for fintech companies, which make up a significant portion of the city’s startup scene. In addition, major players such as Coinbase and Robinhood went public during 2021, eliminating the opportunity for venture capitalists to get in on the action.

A shifting market has also played a role in the types of VC investments taking place in the city. While 2021 was defined by an environment ripe for initial public offerings, investors in 2022 pivoted to pouring dollars into younger companies, with 61% of deals taking place in early rounds. The move girds investments against public-market turbulence, as potential exits will be several years down the line, while ensuring investors’ dollars aren’t entirely tied up.

As layoffs proliferate across the city’s tech sector after exuberant and perhaps premature hiring, now the question is, will New York’s startup sector reach its previous heights again?