Venture Capital Market Won’t Miss 2023 But 2024 Offers Renewed Hope

2023 will go down as one of the most challenging years of recent times for the venture capital community. As if the macro environment wasn’t challenging enough, there was the situation in March with Silicon Valley Bank that, even for a brief moment, was an existential threat to the entire ecosystem.

That situation clearly wasn’t a short-term challenge. Industry magazine Venture Capital Journal published an article recently suggesting that just $58.1bn was raised by venture funds globally in H1 this year, across only 255 funds. That’s down substantially on 2022 numbers. And the deal flow news hasn’t been much better. The value of VC investments dropped 30% in the third quarter, and the number of funding rounds fell by almost 35% as well.7

But it’s not as if there hasn’t been any good news in venture this year. Generative AI is the new darling of the VC industry, with the first three quarters of this year delivering the greatest aggregate deal value probably ever. That data for Q1 is skewed because of the OpenAI / Microsoft deal, but the number of deals for Q2 and Q3 were both higher than the average of the past few years.

Additionally, some celebrity support for the industry has been observed. Former Facebook COO Sheryl Sandberg has launched a new firm and Reed Jobs, son of Apple co-founder Steve Jobs, has also launched a firm this year. If you’re into Cricket, then you’ll know the name Ben Stokes, the captain of the England Cricket team, who is one of the founders of Players Fund.

So, 2024 will – probably – see plenty of activity from the famous faces who are setting foot in the VC industry. And it’s well understood that difficult years for the broader capital markets tend to coincide with outstanding vintage years for VC funds, as lower prices paid for investments (as valuations fall) means that there is greater potential upside for when the VC exits the deal.

In macro terms, we’ve seen encouraging signs that inflation in many western economies – where most of the VC activity is – is coming down, or at least, plateauing. And interest rate rises also seem to be on hold – the US Federal Reserve, Bank of England and European Central Bank all stopped rake hikes this fall – at least, for now. And public markets seem to be on surer footing. That’s all good news for VCs raising money and doing deals.

Most of them won’t be sorry to see the back of 2023 and will very likely be looking forward to a 2024 that will hopefully bring significantly fewer challenges and significantly more certainty than in the previous 12 months.