In the first quarter of 2024, U.S. venture capital (VC) investments totaled $36.6 billion across 2,882 deals, a significant decline from $51.6 billion over 4,026 deals the previous year, according to a recent Pitchbook and National Venture Capital Association report.
This quarter marked a period of relative stagnation for U.S. VC investments, characterized by a few notable deals and a comparatively high overall deal count. Despite this being the lowest quarterly deal value since 2017, the absence of high-profile transactions and the ongoing scarcity of capital were significant factors, the report indicated.
On a brighter note, median valuations have experienced a slight uptick across various investment stages. This increase is likely driven by robust public market performance and a preference for fundamentally sound companies that continue to attract capital despite a slow venture environment.
Investors remain cautious in light of ongoing economic uncertainties. Persistent inflation has diminished hopes for interest rate cuts in the near future, and there are rising concerns about a potential recession. The NVCA does not anticipate a meaningful recovery in deal activity soon.
U.S. Exits
The quarter was highlighted by the initial public offerings (IPOs) of Reddit and Astera Labs, which accounted for 73.4% of total exit value through March. The anticipation of increased IPO activity has sparked interest in a market that has experienced slow exits for the past two years. Although both IPOs performed well initially, uncertainties linger regarding their future prospects.
The public market's performance remains heavily influenced by major tech stocks, with investor appetite for high-risk, unprofitable companies yet to be demonstrated, particularly those lacking a narrative tied to AI growth. Mergers and acquisitions (M&A) also faced challenges, with most transactions being minor in scale.
U.S. Fundraising
U.S. VC fundraising has shown significant sluggishness, with only $9.3 billion raised, representing just 11.3% of the total from the already subdued market in 2023. Despite high levels of dry powder, tepid fundraising indicates a hesitance among limited partners (LPs) to invest in VC, which may lead to a tougher dealmaking environment in the future. Previously, large mega-funds dominated fundraising trends, but Q1 2024 appears to signal a waning appetite for such investments.
Europe
In Europe, VC activity began the year slowly, recording a deal value of $17.5 billion (€16.4 billion) across 2,395 financings. The European Union's slower growth continues to impact company expansion and investment activity. While late-stage and growth-stage valuations have slightly declined, seed and early-stage valuations remain relatively strong due to their distance from public markets.
In terms of exits, Q1 2024 marked the seventh consecutive quarter with less than $7.5 billion (€7 billion) generated. Only three exits surpassed $107.3 million (€100 million), resulting in reduced returns and contributing to a challenging investment climate for VC-backed companies lacking access to public markets.
Fundraising in Europe saw only 47 funds closed through March, raising $5.37 billion (€5 billion) in total. Globally, fundraising has decelerated significantly due to heightened caution among LPs, exacerbated by a slow exit market. As returns diminish, LPs find themselves constrained in funding new VC initiatives, with only four funds closing at or above €250 million.
Global Trends
Globally, VC trends reflected similar patterns to those seen in the U.S. and Europe, with deal activity relatively quiet. Approximately 10,222 deals garnered total investments of $75.9 billion. Markets in Asia and Latin America have been unable to sustain the investment levels seen in 2021, facing similar challenges as established venture markets. The global economy's impact continues to weigh heavily on venture activity, leading to more sustainable investment paces.
Regarding exits, the total exit value of $30.7 billion marks the lowest quarterly figure since Q4 2016, with many large companies remaining privately held, hampering market returns and exerting pressure on investment outcomes.
In fundraising, $30.4 billion in VC commitments closed in Q1 represent only 16.2% of 2023 totals, 9.3% of 2022, and a mere 5.5% of the commitments in 2021. Global VCs have struggled to return capital to LPs over the past two years, which has resulted in a cautious stance among LPs regarding reinvestment in the current climate. Notably, 33% of total commitments in Q1 were allocated to North America-based VC funds.
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