Rising interest rates make money more expensive, but those in the industry say both private equity and strategics have significant capital to get deals done now that prices have come down.

“It’s true debt is more expensive, but valuations are coming down,” said , senior managing director and head of investment banking at .

Although 2022 couldn’t come close to the robust number of deals announced in 2021, it was on par with previous years — with more than 1,070 VC-backed startups in the U.S. getting bought, according to Crunchbase .

However, it is interesting to note dealmaking in the space did drop off as the year went along. The fourth quarter of 2022 was on pace to be the slowest of the year, perhaps dragged down by an uncertain economy and fears of a recession.

Big deals

Some of the biggest deals of 2022 involving VC-backed startups in the U.S. included:

• In September, agreed to acquire San Francisco-based collaborative design platform for $20 billion in cash and stock in the largest purchase of a U.S. private, venture-backed company in 2022.��
• In January, announced it will buy Alameda, California-based device software company for $4.3 billion.
• Also in January, acquired Bellevue, Washington-based gaming company for $3.6 billion.��
• In May, bought Cambridge, Massachusetts-based clinical-stage biopharmaceutical company for up to $3.3 billion.

Three of those deals occurred in the first half of the year, when the market was still riding the tailwinds of 2021. While the dealmaking market started slowing as 2022 wore on, most saw that “wait-and-see” attitude from buyers changing as potential targets started to run low on cash.

“Companies will want to raise capital, but are looking at what will be a dual-track process,” said Nash, meaning startups will be looking at both fundraising deals as well as possible sales.

“Our initial prediction is that volume picks up, but dollars will not” in 2023, said Nash. He added he expects dealmaking to pick up as the year wears on.

Valuations drop

In addition to the need for cash, many startups are not nearly as expensive as they were even as recently as the start of 2022.��

The skyrocketing valuations in the private markets and the option to go public via a SPAC left many would-be corporate acquirers on the sidelines, said , managing director at .

“The drop in valuations in public markets and the ensuing drop in valuations for many startups will bring pricing back in line,” he said.

, general partner at , said even with dropping valuations, the�� question is whether the buyers will be similarly motivated.��

“For the most part, their motivation will be ‘wait and see’ and there isn’t much of a rush, especially because of a perception that the market hasn’t hit bottom,” he said.

However, private equity is sitting on more dry powder than ever before — over $1.5 trillion — and strategics have perhaps been timid because of what had been until more recently a frothy market.

“You have large companies that are scaling back right now,” Nash said. “So they may start cherry-picking really interesting companies.”

Nash said that is especially true as cutbacks at these companies could have stifled innovation, which they may now need to acquire.

Also, big tech companies like , and have — despite a brutal 2022 that involved layoffs — significant cash and could put it to use now that the market has turned back to their favor.

Affected areas

Where that dealmaking may occur could be the real question.

Nash said the IPO backlog has affected industries including health care, fintech and consumer tech the most. He added fintech could be a good spot to cherry-pick some of the best companies as funding dries up.

Other areas, such as renewables and cybersecurity, also could see activity — although valuations in cyber have not been affected as much in the recent downturn.

, founding director of San Francisco-based financial advisory firm , said while M&A activity was down year over year, 2022 should still easily be the best year ever for dealmaking, with the exception of 2021.

He expects 2023 to be another big year — certainly in terms of volume.

“As the funding crunch has continued for a bit longer than most expected in 2022, and many companies face considerable ‘down’ rounds in their next capital raise, M&A activity will likely increase, albeit at lower valuations than in prior years,” he said.

While interest rate hikes could curtail some dealmaking, said the market may see companies explore alternative financing plans and an increase in equity components as cash becomes more expensive.

“I don’t think the overall M&A numbers will stay down due to hikes, but we could see certain industries’ numbers fall,” he said. “Overall, I think we will continue to see a steady pace of M&A deals into 2023, but it won’t quite be the historic highs of 2021.”

Will 2023 be the comeback year for IPOs? What will it take for the public market to thaw? Here are the Crunchbase News staff’s top picks for the companies we think could go public next year.��

And if some of these sound familiar, it’s because they are: In our 2022 edition of this list, we predicted many of these might go public this year. Little did we know that the IPO markets would stall. So here we are again, offering up some thoughts on who might make public debuts, if and when IPOs start happening again.

Enterprise tech and cybersecurity

: It wasn’t that long ago when Eden Prairie, Minnesota-based Arctic Wolf seemed IPO bound. The company raised $150 million in a Series F in July 2021, taking its valuation from $1.3 billion to $4.3 billion. At that time, then-CEO said an IPO was likely the next logical move. Then the market changed drastically, and in October the managed security provider raised $401 million in convertible notes led by existing investor. Convertible notes work like a short-term loan, but these notes are repaid to the investor at a later point in equity — i.e. after an IPO — typically at a discount. The managed security space can support large players and Arctic Wolf has grown large since being founded in 2012. Perhaps those notes turn to equity in 2023.

: Everyone has been on Databricks for a while. As recently , CEO talked about going public, but offered no timeline. The market has only grown colder for IPOs since then, but this is a company that ended 2021 with more than $800 million in annual recurring revenue. It’s big and growing. It also hit a post-money valuation of $38 billion after raising a $1.6 billion Series H led by in August 2021. And that big Series H came just seven months after the company raised $1 billion at a $28 billion valuation. That valuation may be what is keeping the San Francisco-based company from going public. Nevertheless, Databricks — which creates tools and products to help companies view both structured and unstructured data in a single location — could look to 2023 to finally offer employees and investors the liquidity they’ve waited for.

: The supply chain is still top of mind, so maybe some company will ride that to the public market. San Francisco-based Flexport, which was on our IPO list last year, locked up a $935 million Series E in February led by and at an $8 billion valuation. The global freight forwarder and logistics platform moved nearly $19 billion in merchandise across 112 countries in 2021, even as global supply chains suffered from multiple disruptions. In total, the startup has already raised more than $2 billion, according to Crunchbase data. Despite a down VC market this year, logistic and supply chain startups still were able to raise cash from private investors. Maybe they can do the same with public ones?

— Chris Metinko

Fintech and banking

: The most obvious and one of the most successful fintech startups to add to this list is online payments company Stripe, which is co-headquartered in London and Dublin. It is the fifth most valued startup on the The Crunchbase ������Ƶ, and was most recently valued in a 2021 financing at $95 billion. Founded by brothers , its CEO, and , its president, Stripe is now 12 years old and has raised more than $2 billion in funding. The company processed $640 billion in payments in 2021 up 60% from the prior year. It was said to have according to . As a result of the market correction, the company lowered its internal valuation in 2022 to $74 billion. The company filed its intention to go public in July 2021 but has not yet set a date. It cut around 1,100 jobs, or 14% of its workforce, earlier this year.

: London-based Revolut is the second most valuable European fintech, valued at $33 billion as of July 2021. The company is 7 years old and has raised $1.7 billion in funding. Founded by and , Revolut took off as it made transferring money in different currencies easy for those who work or travel in multiple countries. Revolut has not initiated layoffs in 2022 — in fact, it has kept hiring. The company announced revenueof 261 million pounds in 2020 but has not posted revenue for 2021. Revolut has 25 million retail customers and applied for a banking license in the U.K. in 2021.��

: San Francisco-based Plaid connects user bank accounts to fintech apps. The company was founded nine years ago by , its CEO, and , a board member. It was last valued in Series D funding in August 2021 at $13.4 billion and has raised $734 million over time. Plaid’s revenue in 2020 was said to be in an article by Forbes. planned to purchase the company in 2020 for $5 billion, which was halted by regulators the following year. In December 2022, Plaid laid off 20% of its staff, or around 260 employees, as Peret said that slower than expected growth after the pandemic meant that Plaid’s “pace of cost growth outstripped our pace of revenue growth.” On the other hand, Peret also said that the number of customers Plaid serves has grown 50% in the past year.��

— Gené Teare

Consumer platforms and services

: Instacart is kind of the startup equivalent of the “always a bridesmaid never a bride” cliche. It’s always high on lists of likely public market entrants, but has never actually consummated an IPO. Well, we think 2023 will be the year. (Yes, we said that last year too, but cut us some slack.) An offering started looking even more likely after the company in May that it filed a confidential draft registration with U.S. securities regulators, with a debut currently expected to come next year. The filing followed a steep write-down, as Instacart cut its valuation in March from $39 billion to $24 billion.

: Denver-based Guild was also on our list last year, but all told, it still looks like a strong IPO candidate. The Denver-based company, which offers a platform for extending employer-covered education and upskilling to workers, has raised over $640 million to date, including $265 million in a June Series F round. It’s particularly noteworthy that the company secured a big round in a period in which overall edtech funding has been declining, indicating investors see a lot to like in the business model.

: If you’ve been around long enough and raised enough money, inevitably investors will be looking for a return. This notion applies quite succinctly to Faire, an online marketplace for independent retailers and brands that has raised $1.7 billion since 2017, per Crunchbase data. The company’s business model could also see some favorable headwinds as consumers return to local stores, which stock from its suppliers, after a pandemic-driven shift to predominantly online shopping.

: TripActions is another heavily funded company that’s often bandied about as a likely IPO candidate. The 7-year-old, Palo Alto-headquartered company provides corporate cards and expense management tools, with a focus on business travel. Startup investors certainly seem to like the brand. The company pulled in $300 million in an October Series G round at a post-money valuation of $9.2 million. TripActions also is already making progress on the IPO path — it filed confidential paperwork for an offering with the SEC, per a September report.

— Joanna Glasner

Life sciences, agtech and foodtech

: We’re still waiting for Lyra — or maybe or some other teletherapy company — to go public. A first-mover teletherapy startup that took the direct-to-employer route in 2016, Lyra Health has worked with companies including , and to provide teletherapy long before insurance companies at-large embraced the practice. At the beginning of this year the startup raised $235 million in Series G funding, upping its valuation to $5.58 billion. Lyra held back during the 2021 IPO mad rush its competitor participated in, but it’s more than ready for the public markets.

: We consider vertical farming and urban farming a solid bet next year. Thin-margin grocery stores are being hit hard by logistics and supply issues, so the idea of a produce farm located close to consumers seems pretty ideal. Vertical farming startup Plenty rang in 2022 with $400 million in Series E funding, almost half of all the funding the company has raised since it got started in 2014. Plenty began building out a vertical farming “campus” in Virginia, where it would grow strawberries for the large farming conglomerate . There aren’t that many agriculture startups that went public — almost made the leap via SPAC in 2021 until funding closed up — but Plenty seems ripe to go public.

: Armed with $1.3 billion in funding over nine funding rounds, precision medicine startup Tempus is easily one of the most intriguing companies to come out of the pandemic. Its technology platform is different from most biotech upstarts that focus on developing molecules. Tempus scooped up two clinical trial-related startups and has its hand in multiple parts of the drug-making lifespan — something we don’t see outside of giant pharma companies such as or . Tempus raised $275 million in debt financing in October for its ability to leverage AI in drug discovery and genomic sequencing.��

— Keerthi Vedantam

Outside the box

: Design-software maker Canva has reeled in more than $572 million in funding and a $40 billion valuation from venture investors. The Australia-based company is known for its design software for nondesigners, but new tools rolled out this year show its ambitions are even bigger. It recently that promises to help automate marketing copywriting, around the same time that ’s ChatGPT tool set the tech world abuzz. Investors seem to be increasingly drawn to technology that automates even the most creative of fields, and Canva is at the head of the pack in that group. At least one of Canva’s biggest investors is feeling more bullish on the company again: , after the design softwaremaker was previously hit by a series of writedowns.

: We thought it’d be fun to include a name that doesn’t generally grace the likely IPO lists, and that’s where ICON comes in. The Austin-based construction technology company, known for its iconic 3D-printed homes, has raised more than $450 million in venture funding in the past five years. It’s the kind of branded, consumer-facing technology company that might benefit from the higher public profile that comes with a listing on a major exchange.

��— Marlize van Romburgh and Joanna Glasner

It would also prompt a big uptick in valuation from the last recorded valuation for the 10-year-old San Francisco-based company. Figma was valued around $10 billion in its Series E funding led by in June 2021. Its earlier investors, which include and , are poised to do very well from this acquisition.��

The largest technology acquisition prior to this announcement was ’s purchase of n 2014 for $19 billion. And the third largest is ’s purchase of in 2018 for $16 billion.��

This is not the only billion-dollar acquisition for Adobe in recent years.��

The San Jose-based digital marketing and design company founded in 1982 has acquired cloud service companies with a wide range of capabilities in recent years.����

Adobe acquired marketing automation platform from which took the company private in 2016 for around $1.8 billion. Adobe paid $4.8 billion in 2018. In the same year, Adobe acquired cloud commerce platform for $1.7 billion.

More recently, in 2020 it acquired enterprise workplace management company for $1.5 billion and in 2021 video collaboration platform for $1.3 billion.

Strong market response

The public markets have not reacted well to the announcement, with Adobe’s stock trending down 17% in a day. Adobe reported $4.43 billion in revenue in the third quarter of 2022 showing 13% year-over-year growth. Adobe forecasts that Figma’s recurring annual revenue will be .��

In 2005, when Adobe acquired , a web design software developer and a big competitor at the time, for $3.4 billion in a stock transaction which amounted to 18% of its stock, the market either.��

Still, the Figma acquisition offers clear advantages. With the advent of the cloud and scaled pricing from SaaS businesses, gaining a significant user base through product—and price—differentiation has led to innovation and competition. Incumbents are not always well-positioned to launch lower-priced options at scale. Acquiring your way into that makes ultimate business sense.��

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