According to the Venture Monitor report for Q2 2024, the venture capital dealmaking environment continues to face challenges on a global level. The lead VC analyst Kyle Sanford and lead EMEA private capital analyst Nalin Patel noted that factors such as inflation, interest rates, and macro uncertainty have contributed to the struggle. Although there have been some large deals that have increased deal value, the overall environment is still difficult. Many VC-backed companies are facing pressure due to the lower availability of capital, forcing them to raise further private funds because exits cannot be achieved.
**Slow Fundraising and Lack of Large M&A Deals**
The fundraising figures in the venture capital industry have been particularly slow, pacing the year for the lowest total commitments since 2015. The high rate of recommitments to the strategy that global LPs realized in the past few years has exacerbated the slowdown. Now that distributions have slowed, limited partners are facing difficulties in reupping commitments, leading to unbalanced portfolios.
In addition, the global venture market is missing middle and large-sized merger and acquisition (M&A) deals. While acquisition counts remain relatively high, the majority of the deals have been small. The need for immediate impact on the acquirer’s bottom line has made larger deals less attractive, as many acquisitions are unable to provide that immediate impact.
**Latin America Faces Slow Market**
The dealmaking in Latin America is on a slow pace for the year, potentially leading to the slowest year of dealmaking since 2018. The market is cautious due to the high number of deals in 2021 and 2022 that have resulted in few exits. Additionally, the pullback of US investors from the market has contributed to the slow market. Latin America exits are on the same pace as in 2023, which was the slowest year for exits since 2018. If the pace continues, it would be the lowest year for exit value since 2016.
**U.S. Deal Activity Picks Up, but Exits Remain Elusive**
U.S. deal activity has increased on a count basis for each of the past three quarters, which is a positive sign. However, the lengthening exit slowdown is pressuring companies to enter a market that is less forgiving than what they are used to. The relatively lower deal value growth highlights the lesser availability of capital in the market.
Exits remain elusive in the U.S., with just $23.6 billion in exit value generated in Q2, less than in Q1. The IPO market has struggled to restart, despite two high-profile IPOs in the first month of the quarter. For VC returns to see an increase, large tech companies must begin to list publicly at a higher pace than what has been seen in the first half of the year. The market is currently facing its lowest exit total since 2016.
**European VC Activity Remains Resilient**
European VC deal activity in Q2 2024 was resilient and in line with recent quarterly figures, despite fewer deals. The first half of 2024 showed a slight decrease in deal activity compared to 2023, reflecting the current dealmaking environment. Deals continue to close despite volatile macroeconomic indicators and uncertainty around geopolitics across the continent.
Exit activity in Europe was thin in Q2 and fell further from depressed levels in Q1 2024. If this trend continues, it could result in a decade-low for exit value by the end of the year. Factors contributing to the lack of exits include weak growth displayed by previously VC-backed companies that have gone public in recent years and ambiguity surrounding realistic market valuations.
Despite these challenges, European VC fundraising was solid in the first half of the year, albeit slightly down from 2023 levels. Fundraising has slowed since 2021, but major funds closed by established names such as Accel and Creandum have helped boost figures in Europe.
