By: Allan Parks
Product Manager, Portfolio Monitoring
March 20, 2024
For venture capital managers and investors, 2023 was a wild ride – and not necessarily in a good way.
We entered 2023 with disappointing VC deals, fundraising, and IPO figures. Add in the meltdown of Silicon Valley Bank and the subsequent banking liquidity scares in late Q1, plus the investor caution that accompanied it, and it’s easy to see how ideal conditions never lined up for the venture capital industry in 2023.
While 2024 doesn’t suggest a return to the record-breaking days of 2021, there are positive signs that venture capital activity is modestly picking up. Notable quarter-over-quarter improvements in fundraising, deal volume, and valuations appear to be ahead, indicating a shift in venture capital trends.
Here are those key trends in venture capital to watch as 2024 unfolds.
#1: Funding rebound ahead
While VC has traditionally been associated with rapid deals and skyrocketing investments, the landscape of the venture capital industry has shifted in the past few years. Factors such as market uncertainty, economic conditions, and changing investor preferences are contributing to this trend.
MORE ON VC: Venture Capital Manager Trends from Allvue’s 2023 Research
According to CBInsights, 2023’s VC funding founds in terms of value and deal number will be down significantly compared to 2022 – at the end of Q3, deal value was still less than half of what we saw in 2022. However, Q3 2023 also saw an 11% increase from the previous quarter, suggesting new momentum. And with a record $283 billion in VC dry powder in the US alone, according to SVB’s State of the Markets report, new funding momentum will be a welcome development.
In facing this slowdown, VC managers have been presented with both challenges and opportunities. It encourages a more selective and thoughtful approach to investment decisions, as investors and firms alike reassess their strategies and focus on deal quality over quantity. While the pace may be slower, this shift can lead to more informed, sustainable investments that ultimately benefit both startups and investors in the long run. And if these late 2023 numbers suggest anything, it seems that this slower, more measured approach forced by the market could be facilitating a steady climb back upward.
#2: Positive signs in Europe VC
A compelling narrative has been unfolding in Europe. While the overall VC market is dealing with malaise, Europe’s venture scene is witnessing some promising fundraising activity. Crunchbase data shows a 28% QoQ increase in funding for European startups for Q3. Late-stage startups in particular are reaping the benefits.
Over the past few years, European VC activity has continued developing and stayed resilient through a post-2021 downturn, as 38% of VC exits went to European startups, per CB Insights, leading all other regions for four quarters in a row. The continent’s startup ecosystem, once overshadowed by its counterparts in Silicon Valley, is now thriving with innovation and entrepreneurship. This growth is driven by a surge in promising tech companies emerging from cities like Berlin, London, Stockholm, and beyond, offering a diverse range of disruptive solutions.
Late-stage startups might be landing the funding currently, but this heightened activity is fostering a rich breeding ground for startups and bodes well for 2024 and beyond, creating a thriving ecosystem of tech talent, and establishing Europe as a formidable player in the global VC landscape.
#3: AI hype drives overall VC funding
“In the US, AI and biotech startups continue to garner interest from investors across all stages, particularly as economic headwinds seem to weaken. In fact, excluding the OpenAI and Stripe deals, US funding increased about 10% quarter over quarter.”
– Bain and Company
The venture capital world is buzzing with excitement as AI startups take center stage. After all, we opened 2023 with an enormous OpenAI deal clocking in at $10B. OpenAI continued in raising the hype around AI with the widespread adoption of ChatGPT, sparking follow-ons from tech giants like Google and Bing.
This buzz shows no sign of stopping in 2024, and startups specializing in AI are capturing the imagination of investors with their ability to harness data, automation, and machine learning to solve complex problems. Whether it’s healthcare, finance, autonomous vehicles, or customer service, countless industries are feeling the pressure to show they can enhance efficiency by adopting AI into their operations now that real-world applications of AI are aplenty. In 2024, the VC space will be eager to cash in on that pressure.
#4: Signs of life in the IPO market
“With the recent uptick in IPO activity, there are glimmers of optimism for venture markets. If all goes well, and the broader macro and markets backdrop remains supportive, we expect a bigger reopening in 2024.”
– J.P. Morgan
There are small but notable signs that initial public offerings (IPOs) could begin to regain momentum in 2024. After a period of relative restraint, IPO activity is slowly picking back up in the venture capital space. While valuations are down and IPO counts are drastically lower than we’ve seen in past years, certain companies nurtured by venture capital are now reaching a stage of maturity where they are choosing to go public and achieve a healthy return, seizing the opportunity to access broader capital markets. As KPMG points out, in Q3 2023, AI chip maker Arm, grocery delivery company Instacart, and marketing automation firm Klaviyo all chose to go public – a flurry of activity turning heads for the VC audience.
This revival of IPOs signifies a growing confidence in the strength and potential of these companies. It’s not just about liquidity for investors but also about the promise of innovation and transformative technology reaching a wider audience.
Want to know more about what to expect from private capital in 2024?
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More About The Author
Allan Parks
Product Manager, Portfolio Monitoring
Allan Parks, Product Manager of Fund Performance and Portfolio Monitoring Solution joined Allvue in 2021. Previously, he was a Product Manager of Portfolio Construction Services at Capital Group, and prior to that, a Portfolio Advisor at Merrill Lynch’s Private Banking and Investment Group where he led Private Capital (Alternative Assets) portfolio allocation for a $5Bn AUM team serving foundations, family offices and UHNW. He is a graduate of University of San Diego, he holds an MBA from Thunderbird School of Global Management (ASU), and he is a CFA Charterholder.
