Venture capital funding dropped in the first quarter after a record-breaking 2021, according to the findings of the latest PitchBook-NVCA Venture Monitor report released early Thursday.

Describing venture capital deal-making as adjusting to a “new normal,” the report found that investment activity remained strong in the quarter, coming at $70.7 billion, the fifth-highest total in PitchBook’s database. Deal sizes and valuations began to slow quarter as the companies close to an exit saw public valuations reflected on them as they look to raise capital.

The decline in funding was felt across the board. Compared with the previous quarter, the deal value dropped 35%, to $95.4 billion. “Megadeal” activity fell in the quarter, to only 185 deals sized at $100 million or more, bringing in $36.6 billion in capital. The report noted that the pullback is relative, since the total megadeal count and value are still more than any year before 2018.

Indeed, it wasn’t all doom and gloom. Nontraditional investor participation remained strong as deal numbers approached record levels in the first quarter despite a slight pullback in deal value from the previous quarter. Nontraditional investors such as corporate venture arms participated in an estimated 1,823 deals valued at more than $52.5 billion in the quarter.

First financing continued at a historically high rate in the quarter, with more than 1,000 deals closed. The first quarter finished with more companies raising their first institutional capital than any quarter prior to 2021.

Going forward, investors may face headwinds as public market volatility continues and the Federal Reserve raises interest rates. Any softening in nontraditional investor activity will likely significantly affect VC deal value after years of record investment from these institutions.

Reflecting the data reported in Pitchbook’s first-look report last week, the full report noted that initial public offerings and exits of VC-backed startups came to a near-complete halt during the first three months of the year. The quarter only saw $33.6 billion in exit value posted after three consecutive quarters of more than $192.0 billion.

The total for capital exited is not at a historic low but is more in line with 2018 and 2019. Exits dropped 82.5% quarter-over-quarter in exit value and there was a 44.8% drop in the overall number of exits.

Although totals may be declining overall, venture capital funds still have money to invest. VCs raised $73.8 billion in commitments across 199 funds in the quarter. Funds raised already total 56% of 2021’s full-year record of $131.5 billion.

“The start of 2022 has shown signs of an expected adjustment for the VC industry on the heels of a two-year period where VC-backed startups served as the backbone of the U.S. economy during the global pandemic,” NVCA Chief Executive Officer Bobby Franklin said. “Where the slowdown will taper off remains to be seen, but VC investors are in a strong position with ample dry powder amassed in recent years and Q1 to continue fueling startups that are solving big needs and transforming how we live and work.”

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