TLDR: Is venture capital funding for startups coming back?
Key Points:
- Venture capital funding for startups slowed down in recent years due to higher interest rates and stock market volatility.
- Recent signs suggest that the startup market in Boston could be heating up with increased exit activity, including acquisitions and IPOs.
Despite a slowdown in venture capital funding for startups in recent years, signs are emerging that the market in Boston could be heating up. The back half of the cycle, known as the market for “exits,” has seen increased activity with acquisitions and initial public stock offerings. This includes acquisitions of Boston data management startup Nasuni and Somerville cybersecurity firm Recorded Future, as well as IPOs by biotech startups Bicara Therapeutics and Zenas BioPharma.
The renewed activity in the startup market could be related to expectations of the Fed lowering rates and a modest recovery in tech stock prices. Harvard Business School professor Josh Lerner noted a clear link between exit activity and new funding, as money from acquisitions and IPOs flows back to investors in VC funds, who then cycle the money into new VC funds for startups.
However, not all market watchers are convinced that the recent activity signals a broader recovery. The IPO market for VC-backed companies remains depressed, and acquisition activity is also below previous levels. While the third quarter has seen a bump in exits in recent years, investors are taking a measured approach, with a feeling of cautious optimism.
In conclusion, while there are positive signs of increased activity in the startup market in Boston, the overall outlook remains cautious, with investors taking a measured approach in an election year.
