3 VCs offer their investment outlook for 2024

For venture capital (VC) investors, the economic uncertainty of this sort-of-post-pandemic world has proven tricky. Add in things like a national anti-DEI backlash (complete with lawsuits) and a substantial drop in 2023 funding despite the launch of open-source generative AI, and you might call it fraught.

To better navigate this uncertainty, we connected with VCs based in Baltimore, DC and Milwaukee to see what trends they’re seeing for 2024. How cautious are they, and what kinds of companies are they interested in investing in?

Here’s what they told us: READ MORE

"There is currently a trillion dollars trapped in VC funds and investors are desperate for liquidity”

In the last decade, a staggering 1,200 venture capital funds emerged, marking one of the tech sector's most remarkable periods. This era witnessed an influx of hundreds of billions of dollars from both seasoned and novice investors, drawn by promises of dream returns as long as the unicorn factory kept galloping.

The years 2021 and 2022 became industry milestones with record fundraising surpassing $300 billion, and even the Israeli venture capital market joined in the celebration. However, the winds shifted in 2023, leaving many disillusioned from their VC ventures as valuation levels plummeted, new fundraising rounds vanished, and exits disappeared from the horizon. READ MORE

M&A Dropped 31% For VC-Backed Startups In 2023

Dealmaking involving venture-backed startups hit an eight-year low last year, as strategic and private equity buyers decided to keep their cash, likely waiting to see how far startup valuations would drop.

It is not shocking that dealmaking hit a low ebb last year, but the dearth of VC-backed startups sold last year may offer a surprise. In 2023, only 1,738 venture-backed startups were acquired globally — the lowest amount since 2015, when 1,687 startups were bought — per Crunchbase data. READ MORE

Private equity faces pressures of growing old

Private equity firms that were once Wall Street’s disruptors have turned into its establishment, and are turning to a solution they know well: deal-making.

In the latest move, General Atlantic, known for taking stakes in fast-growing private companies, is buying Actis, which owns telecom towers in the Balkans and data centers in Chile. BlackRock, diving into alternative investments after years of false starts, is skipping right over pure-play private equity with its $12.5 billion acquisition of GIP, an infrastructure giant. That follows TPG’s deal last fall for credit and real-estate specialist Angelo Gordon. READ MORE

SEC kicks dead SPAC horse with new rules

The SPAC IPO market has faced a number of challenges recently, including SEC scrutiny, disappointing performance by SPAC-acquired firms, an uncertain economic outlook, and rising interest rates, according to financial and risk advisory firm Kroll.

Between 2021 and 2022, there was an over 85% reduction in the number of SPAC listings, according to law firm Paul Hastings. The downward trend continued in 2023, with such listings decreasing by nearly an additional two-thirds. READ MORE

2024: A Year Of Reckoning And Resilience For Startups And VCs

As we bid goodbye to a tumultuous 2023, marked by macroeconomic uncertainties and geopolitical tensions, the private markets stand at a crossroads in 2024.

Despite headwinds, the year concluded on a strong note, witnessing record highs in stock markets and a gradual easing of interest rates and market volatility. As a venture capitalist, I find myself contemplating the implications of these shifts on the private markets and predicting the year ahead. READ MORE

Lower Valuations, Higher Bar: What It’s Like To Raise A Seed Round In 2024

Seed funding to startups has grown into its own asset class over the past decade, with round sizes trending larger, and a bigger pool of investors backing these nascent startups. But in the aftermath of 2021’s venture funding heyday and subsequent pullback, investors say that while seed funding has held up better than other startup investment stages, these very young startups will see lower valuations and must now clear a much higher bar to get backing. READ MORE

US Seed Investment Actually Held Up Pretty Well For The Past 2 Years. Here’s What That Means For 2024

Despite a broad pullback in global startup investment over the past two years, investors say the U.S. seed funding environment was the most vibrant compared to other funding stages during the downturn.

In fact, U.S. seed funding in 2022 grew by close to 10% in terms of dollars invested, in contrast to a downturn at all other funding stages. In 2023, U.S. seed funding fell 31% — a significant proportion — but still less than other funding stages year over year, an analysis of Crunchbase data shows. (It’s also worth noting that those other stages had already experienced year-over-year declines in 2022.) READ MORE

Terminated private equity-backed deals rise as percentage of overall total

Global terminated M&A deals totaled $15.96 billion across 29 transactions in the fourth quarter of 2023, the lowest quarterly tally since 2020, according to data from S&P Global Market Intelligence.

However, deals backed by private equity or venture capital firms, either as seller or buyer, comprised 17.2% of the total volume, the highest quarterly proportion since at least the first quarter of 2020. READ MORE

Want to Raise Money? Ignore These 3 Sources of Conventional Wisdom

Raising venture capital is an infamously tricky task. Thousands of startups pitch VCs each year, hoping to receive the funding to help turn their dreams into reality. At the top firms, only 0.7% of companies receive the funding they seek.

With so much at stake and such long odds of success, founders constantly search for ways to improve their pitches. Unfortunately, this often leads them to learn and follow conventional wisdom, much of which is outdated and ineffective. READ MORE

VC-backed M&A spoils predictions, falling to decade low

VCs and market participants have been predicting an uptick in M&A activity for at least six quarters, but their forecasting powers keep failing them. 

2023 turned out to be the worst year in a decade for acquisitions of VC-backed companies, according to the Q4 2023 PitchBook-NVCA Venture Monitor. Companies purchased nearly 700 startups at a combined value of $26.7 billion, about a quarter of the value sold during the 2021 peak. READ MORE

By 2028, PE and VC fundraising could again reach 2021 highs

Chai latte in hand, I settled in yesterday morning to watch a seminar on private equity, run virtually by investment data company Preqin. I still love taking notes with different colored pens and highlighters.

There was one statistic that I highlighted, underlined, and circled: PE and VC fundraising will hit 2021 highs again in 2028. I found that surprising given that we’re still working through the aftermath of the most recent bubble (one source I spoke to recently compared 2021 in private capital to a wild, memorable party followed by a brutal hangover). READ MORE

New Diversity Reporting Law for Venture Capital Companies with a Nexus to California

On October 8, 2023, California Governor Gavin Newsom signed Senate Bill 54 (“SB 54”) into law, which attempts to increase diversity, equity, and inclusion amongst venture capital (“VC”) investments. The law is the first transparency measure of its kind in the United States and will have a wide reaching impact on VC companies nationwide. Thus, it is important to know which VC companies it affects and what the bill’s future holds. READ MORE

Growth investors' liquidity crunch drives new secondaries vehicles

Secondaries deals are tempting VCs in a down market, and investors are increasingly launching new vehicles to bag hoped-for startup discounts.

UK-based Digital Horizon, an early-stage VC, has rebranded as Launchbay Capital and debuted a fund dedicated to creating liquidity for GPs by buying discounted shares in growth-stage companies. The firm previously invested in household names in B2B software including Klarna, Carta and Monday.com. READ MORE

A Rough Climate for Private Equity Exits Leads to a Spike in Continuation Funds

Private equity firms, in part because of how their funds are structured, tend to be temporary investors. They buy companies, execute a strategy aimed at maximizing their value and exit, hopefully at a valuation greater than they paid going in. Limited partners go along for the ride in the hope of reaping the benefits.

But for many funds, the interest rate landscape and other market conditions are drastically different now than when they were launched, leading to the rise in popularity of continuation funds or vehicles (CVs). In these deals, rather than sell the company to another investor or go public as a fund reaches its target exit date, the original sponsors opt to hold onto their investment, rolling it into a new fund with a timeline of another five to seven years. At that point, LPs in the original deal are typically given the choice to cash out or roll over into the new fund. READ MORE

Can Private Credit Keep Outpacing Private Equity in 2024?

Last year State Street reported private credit funds averaged a 1.88 percent
return compared to to a paltry 0.41 percent return by buyout funds. But some of
the factors driving these results are expected to reverse in 2024.

Private credit has been “outpacing private equity returns as their lending rates have increased with the federal funds lending rate,” says Brad Haller, senior partner for West Monroe’s M&A Practice. “Additionally, private equity valuations have been compressed in some sectors, so realization values are down.” READ MORE