U.S. Q1 2024 venture capital investments fall 29% to $36.6B | NVCA

In the first quarter, deal value for U.S. VC investments hit $36.6 billion across 2,882 deals, down from $51.6 billion across 4,026 deals a year earlier, according to a new report.

The first quarter of 2024 was a relatively calm (or weak if you prefer) quarter for U.S. venture capital investments. Few outsized deals were closed during the quarter, but overall deal count stayed relatively high on a comparative basis, according to a first look at a report by Pitchbook and the National Venture Capital Association.

Quarterly deal value was the lowest quarterly aggregate since 2017, but the lack of outlier deals should be noted, and capital availability remains low, the report said.

On a positive note, data shows that valuations have a slight uptick at the median across several stages. This is likely due to relatively strong performance from public markets and slight multiple expansion, as well as a bias toward fundamentally strong companies’ continued ability to raise capital in the slow venture market, Pitchbook said.

Investors remain cautious in this environment because of continued uncertainties. Sticky inflation has pushed hope of interest rate cuts to the back half of the year, and recession remains a possibility. The NVCA didn’t expect deal activity to pick up in a meaningful way in the near term.

U.S. exits

The Reddit and Astera Labs IPOs (intial public offerings) were the highlights of the quarter. The two exits combined for 73.4% of the total exit value generated through March.

The prospect of increasing IPO activity created buzz in the market narrative because of how slow exits have been for two years. While both IPOs performed well, and the companies held onto their debut performance, there remains uncertainty as to the prospects moving forward.

Public market performance continues to be dominated by mega-cap tech stocks, and still unproven is investor appetite for high-risk, money losing companies that aren’t able to tell their story through the growth of AI. M&A during the quarter remained extremely difficult for large companies, and a majority of transactions were immaterial in size, the report said.

U.S. fundraising

U.S. VC fundraising showed to be one of the slowest areas of the venture market during the quarter. Just $9.3 billion in capital was raised, a paltry 11.3% of the total raised in the already slowed market of 2023.

While dry powder remains high, slowed fundraising portends to LP hesitancy toward VC, and should predict a more difficult dealmaking environment down the road. During the past few years, large mega-funds drove fundraising trends, but Q1 VC fundraising shows there may be no appetite for such vehicles in today’s market.

Europe

Deals: European VCs began the year slowly, notching just $17.5 billion (€16.4billion) in deal value across 2,395 financings.

The European Union continues to grow slower than hoped, adding pressure on company growth and investment activity within the region. While late-stage and venture growth-stage valuations declined marginally, seed and early-stage valuations have continued to show their strength due to the distance from public markets.

Exits: Q1 2024 was the seventh consecutive quarter with less than $7.5 billion (€7 billion) in exit value generated. Just three exits generated more than $107.3 million (€100 million) in value. The inability for VC-backed companies to access the public markets, especially unicorns and other highly valued companies, has crimped returns and added to the challenging investment environment.

Fundraising: Just 47 funds were closed through March, adding just $5.37 billion (€5 billion) to the available capital for the venture market in Europe. Globally, fundraising has slowed significantly due to limited partner caution. The slow exit market has left its own mark on fundraising. Without returns to recycle into new VC funds, LPs are tied up in their options without becoming overallocated to venture. Just four funds were closed on at least $268 million (€250 million).

Global

Deals: Global VC trends mirrored those from the US and Europe. Dealmaking was relatively subdued during the quarter, with an estimated 10,222 deals accounting for total investment of $75.9 billion.

Markets in Asia and Latin America have struggled to sustain the investment paces seen in 2021, but not for reasons differing greatly from more established venture markets. The global economy continues to weigh on venture activity worldwide, as venture markets correct to more sustainable paces of investment.

Exits: The $30.7 billion in exit value is the lowest quarterly exit value since Q4 2016 for the global venture market. Large companies remain stuck private, weighing on returns of the market and putting added pressure on investment and cash runways.

Fundraising: The $30.4 billion of VC commitments closed in Q1 are just 16.2% of those closed in 2023, 9.3% of the total closed in 2022, and 5.5% of the aggregate commitment to the industry in 2021. Global VCs have struggled to return capital to LPs over the past two years, and that dislocation has led to few LPs ready to reup commitments to the market within the current environment. 33% of the total commitments in Q1 were made into North America-based VC funds.