2023 has left its mark on many in the venture capital world.
We saw fewer successful deals, less money being raised, and fewer companies going public compared to previous years. The collapse of Silicon Valley Bank and other financial worries also made investors more cautious than usual, making it a challenging year for the venture capital industry.
As we look ahead to 2024, things are starting to look a bit brighter.
Although we’re not expecting a boom like in 2021, early signs suggest that things are getting better. There’s a slight increase in the amount of money being raised, more deals happening, and overall better conditions for investments. This indicates that venture capital trends might be changing for the better, offering new opportunities for investors and startups.
Here are some key venture capital trends to keep an eye on as the year progresses.
#1 European VC is Growing
Venture capital activity in Europe has shown growth and resilience, especially after a dip in 2021. According to CB Insights, 38% of VC exits were for European startups, leading the pack globally for four consecutive quarters. Europe’s startup scene, which used to be in the shadow of Silicon Valley, is now filled with creativity and entrepreneurial spirit.
This growth is fueled by influx tech startups sprouting in cities across the continent, including Berlin, London, and Stockholm.
While it’s the late-stage startups that are currently attracting most of the funding, this increased level of activity is nurturing an ideal environment for startup growth. We expect this positive trend to continue during 2024 and even the years to follow, contributing to a vibrant pool of tech talent and solidifying Europe’s position as a key contender in the global venture capital arena.
#2 Funding Rebound
Venture capital has always been known for its fast-paced deals and huge investments. However, during the past several years we have seen a shift in this dynamic due to factors like market unpredictability, the overall economic environment, and genuine changes in what investors are looking for.
CB Insights reports that in 2023 (view full report here), venture capital funding in terms of both value and the number of deals is expected to be much lower than in 2022 – by the end of the third quarter, the total value of deals hadn’t even reached half of 2022’s figures. Yet, the third quarter of 2023 also showed an 11% increase from the quarter before, hinting at the beginnings of a rebound. What’s more, with a record $283 billion of unspent VC funds in the US, as noted in SVB’s State of the Markets report, there’s potential for this uptick in funding to gain traction.
This slowdown has brought its share of challenges and opportunities for VC managers. It prompted a shift towards a more careful and deliberate investment strategy, encouraging investors and firms to prioritize the quality of deals over their quantity. Though the pace has slowed, this change is paving the way for more sustainable, well-considered investments that could benefit both startups and investors over time.
And if the late 2023 figures are anything to go by, this more cautious approach, driven by market conditions, may well be laying the groundwork for a gradual recovery.
#3 (Inevitable) AI’s Influence
It’s no surprise that the venture capital scene was also influenced heavily with AI startups. Not only did they have a major influence, but they kinda took the spotlight too.
The year 2023 kicked off with a bang, thanks to a massive $10 billion deal involving OpenAI. The company kept the AI excitement going, especially with ChatGPT’s widespread adoption, inspiring major tech players like Google and Bing to enter the scene.
This hype is expected to continue strong into 2024, with AI-focused startups captivating investors through their innovative use of data, automation, and machine learning to tackle intricate challenges. The venture capital community is keen to leverage this momentum in 2024, ready to invest in the transformative potential of AI.
San Francisco was a Leader as Top Region 2023 Q4
The San Francisco Bay Area kept its spot as the number one region for investments in the last quarter, with Boston taking second place, thanks to a massive $1.8 billion investment in a company working on fusion energy. This big move pushed New York down to third, as it didn’t see any deals quite that large. Los Angeles held steady in fourth based on the amount of money invested there.
For the first time since 2011, the total number of deals in the Bay Area were below 2,000. Despite this drop, the region remains a key player, contributing to three of the top 10 biggest deals last quarter. Investment activity spread out across different areas, with Nashville and Phoenix making a splash by entering the top 10 with their significant deals.
I’m curious to see whether it’ll remain on top in 2024 too.
Overall Conclusion and Thoughts
As the months go by, the venture capital landscape puts in a fight. The competition for funding is fierce this year, with a significant number of companies that haven’t secured new capital since 2021 now seeking to raise additional funds. Venture capital firms, having focused on supporting their existing portfolio companies, are beginning to look for new investment opportunities.
In a potentially promising development for the sector, corporate investors have indicated a readiness to increase their engagement in the corporate venture capital arena. This shift could signal a more vibrant funding environment as we move further into 2024.
