The first quarter of 2024 saw a decline in U.S. venture capital investments, with a decrease of 29% to $36.6 billion compared to the previous year, according to a report by Pitchbook and the National Venture Capital Association (NVCA). The decline in deal value was mainly attributed to the absence of large outlier deals during the quarter. However, the overall deal count remained relatively high.
Despite the decline in deal value, there was a slight uptick in valuations at the median across several stages. This can be attributed to the strong performance of public markets and a bias towards fundamentally strong companies that were able to raise capital in the slow venture market.
Investors remained cautious due to continued uncertainties, including sticky inflation and the possibility of a recession. The NVCA did not expect deal activity to pick up significantly in the near future.
In terms of exits, the highlight of the quarter was the IPOs of Reddit and Astera Labs, which accounted for 73.4% of the total exit value generated through March. While both IPOs performed well initially, there remains uncertainty about their prospects moving forward. The slow exit market has made it difficult for VC-backed companies to access the public markets, impacting returns and adding to the challenging investment environment.
U.S. VC fundraising also showed a slowdown during the first quarter, with just $9.3 billion raised, representing 11.3% of the total raised in 2023. This suggests LP hesitancy towards VC and predicts a more difficult dealmaking environment in the future.
In Europe, VC deals began the year slowly, with $17.5 billion in deal value across 2,395 financings. The European Union’s slower growth has added pressure on company growth and investment activity within the region. Late-stage and venture growth-stage valuations have declined marginally, while seed and early-stage valuations have remained strong.
The global VC market mirrored the trends seen in the U.S. and Europe, with relatively subdued dealmaking during the quarter. The global economy has weighed on venture activity worldwide, leading to a correction in investment paces. Exits were also impacted, with the lowest quarterly exit value since Q4 2016. Global VCs have struggled to return capital to LPs in recent years, resulting in limited LP commitments to the market.
Overall, the first quarter of 2024 saw a decline in venture capital investments in the U.S. and globally. Uncertainties and a challenging investment environment have made investors cautious. However, there were some positive signs, such as an uptick in valuations and strong seed and early-stage valuations in Europe. The venture market will continue to navigate these challenges as it looks for opportunities for growth and returns in the coming quarters.