TLDR:
– Venture capital funding saw a significant decline in 2023 and continues to struggle in 2024.
– The slowdown in fundraising is attributed to caution among investors, rising interest rates, and slow startup exits.
Full Article:
Last year marked the worst year for venture capital funding since 2016, and 2024 doesn’t show much improvement. In the first quarter of the year, venture firms raised $30.4 billion, down from the previous year. This decline signals the end of a period of “megafunds” and a slowdown in startup deal-making in the near future. Investors have become more cautious due to rising interest rates, slowing public listings and sales, and reduced returns from venture fund managers.
Fundraising has been on a steady decline since 2021 when venture capital groups raised $555 billion. Last year, they only managed a third of that amount. In the United States, $9.3 billion was raised in the first three months of 2024, a fraction of the total raised in 2023. This cautious approach is causing a challenge for investors, as one chief investment officer expressed, “It’s tough math for a lot of investors.”
Reports have shown that startups in Europe are turning to convertible debt as funding options dry up. Convertible debt, which transitions into equity over time, allows founders to raise money quickly without needing to disclose new valuations. The volume of convertible debt issued by European VC-backed firms hit a record $2.5 billion last year.
As for startup exits, there is a growing demand for deal-making, with many startups looking to be acquired rather than building operations. However, the current IPO activity has shown mixed results, with only a few FinTech firms trading above their offer price. Despite a 55% gain in the FinTech IPO Index in 2023, actual returns have been inconsistent.
