In the first quarter, U.S. VC deals reached $36.6 billion across 2,882 deals, up from $51.6 billion across 4,026 deals a yr earlier, a study shows latest report.
The first quarter of 2024 was a comparatively quiet (or, if you happen to prefer, weak) quarter for US venture capital investments. Several large deals closed this quarter, but overall deal volume remained relatively high compared to the first report by Pitchbook and the National Venture Capital Association.
The report found that quarterly deal value was the lowest quarterly total since 2017, nonetheless, there are not any outlier deals and capital availability stays low.
On a positive note, the data shows that valuations show modest increases at the median level across several stages. This is probably going due to the relatively strong performance of public markets and modest multiple expansion, in addition to a trend toward the continued ability of fundamentally strong corporations to raise capital in the slow venture market, Pitchbook said.
Investors remain cautious in this environment due to continued uncertainty. Persistent inflation has pushed hopes for rate of interest cuts to the second half of the yr, and a recession stays a possibility. NVCA didn’t expect a major increase in transaction activity in the near future.
US exits
The highlights of the quarter were the Reddit and Astera Labs IPOs (initial public offerings). Together, these two outputs account for 73.4% of the total output value generated through March.
The prospect of increased IPO activity has created a buzz in the market narrative as exits have been slow for the last two years. While each IPOs performed well and the corporations maintained their debut performance, uncertainty about future prospects stays uncertain.
Public market performance continues to be dominated by large-cap technology stocks, and investor appetite for high-risk, money-losing corporations remains to be unproven and unable to tell their story through the advancement of artificial intelligence. According to the report, mergers and acquisitions remained extremely difficult for giant corporations this quarter, with most deals being of negligible size.
Fundraising in the USA
VC fundraising in the U.S. proved to be one of the slowest areas of the venture capital market this quarter. Just $9.3 billion in capital was raised, representing a paltry 11.3% of the total amount raised in an already sluggish market in 2023.
While dry matter stays high, the slowdown in fundraising heralds LP reluctance toward VC and will anticipate a tougher deal environment in the future. Large mega funds have driven fundraising trends over the past few years, but first-quarter VC fundraising shows that there could also be little appetite for such vehicles in today’s market.
Europe
Offers: European venture capital funds began the yr slowly, reaching just $17.5 billion (€16.4 billion) in deal value across 2,395 funding sources.
The European Union continues to develop slower than expected, which increases pressure on business development and investment activity in the region. While valuations of late-stage and venture growth corporations have declined barely, seed and early-stage valuations proceed to show strength due to their distance from public markets.
Exits: The first quarter of 2024 was the seventh consecutive quarter to generate a residual value of lower than $7.5 billion (€7 billion). Just three exits generated over $107.3 million (€100 million) in value. The lack of access to public markets for VC-backed corporations, particularly unicorns and other highly valued corporations, has limited returns and deepened the difficult investment environment.
Fundraising: Just 47 funds closed by March, increasing the capital available to the venture capital market in Europe by just $5.37 billion (€5 billion). Globally, fundraising has slowed significantly as limited partners remain cautious. The slow exit from the market has taken its toll on fundraising. Without profits to plow into latest VC funds, LPs are locked into their options, resulting in an over-allocation to investments. Only 4 funds closed with no less than $268 million (€250 million).
Global
Offers: Global trends in VC reflect those in the US and Europe. Dealmaking was relatively subdued during the quarter, with an estimated 10,222 deals closed for a complete investment of $75.9 billion.
Markets in Asia and Latin America have struggled to maintain the investment momentum seen in 2021, but not for reasons that differ significantly from more established venture capital markets. The global economy continues to impact the activities of venture capital firms around the world as venture markets adjust their investment pace towards more sustainable ones.
Exits: The exit value of $30.7 billion is the lowest quarterly exit value since the fourth quarter of 2016 for the global venture capital market. Large corporations remain private, which negatively impacts market returns and puts additional pressure on investment and money flow.
Fundraising: The $30.4 billion in VC commitments closed in the first quarter represents just 16.2% of commitments closed in 2023, 9.3% of total commitments closed in 2022 and 5.5% of total commitments to the industry in 2021 r. Global VCs have struggled to return LP capital over the past two years, and this dislocation has resulted in few LPs being willing to re-engage with the market in current conditions. 33% of all commitments in the first quarter were made to VC funds based in North America.
Credit : venturebeat.com
