CVC #21: 3Q24 VC market - Insights into shifting trends & market patterns
The global venture capital market is still in a period of recalibration following the boom and subsequent softening that occurred after the peak funding years of 2021. After a noticeable decline in volumes in 2022, it found its new normal in 2023. With venture capital activity slightly rebounded in 2024 driven by AI, the venture capital market is waiting for exit market and correlated distributions to gain momentum.
Overall, the marco economic continues to support Venture Capital. With Central banks globally have entered a phase of interest rate cuts making higher-risk asset classes like venture capital more attractive. The U.S. Federal Reserve has reduced its key interest rate by 50 basis points, setting the target range for the federal funds rate at 4.75%-5.0%. Similarly, the European Central Bank has lowered its key interest rate to 3.25%, with additional cuts expected by year-end and in 2025.
The following personal Q3 2024 assessment of the Venture Capital landscape provides a comprehensive analysis covering investment volumes, exit markets, and megarounds. It also delves into key investment trends, offering a detailed breakdown by region and highlighting the growing role of Corporate Venture Capital investments:
1) Growth rebound of investment volume has paused in 3Q
After two consecutive quarters of rising investment volumes, Q3 2024 saw a softening in global funding levels, reaching USD 54.7bn. This marks a 19% decline compared to Q2 2024 and a 20% drop year-over-year from Q3 2023. The decrease was primarily driven by limited capital distributions and reinvestment (see under point 2), as well as a reduction in the volume of mega-rounds (see under point 3). Despite the overall decline, deal sizes have increased, with the average deal reaching USD 13.9m in 2024 (up from USD 12m in 2023) and the median deal size rising to USD 3m, compared to USD 2.5m last year.
2) Exit Market and distributions or the lack of it
Distributions, particularly IPOs and M&A activity, remain a crucial yet scarce element in the current venture landscape. According to PitchBook and NVCA, the distribution level in the U.S. has reached just 5.2% per end March 2024, with a capital call ratio of 25%, extending the typical investment period to nearly four years.
In Q3 2024, only 72 companies went public, underscoring the limited exit opportunities despite recent rate cuts. However, there was a glimmer of optimism with Cerebras, a USD 4.25bn AI unicorn, filing for an IPO—the first major tech listing since Rubrik in April.
Looking at past tech IPO: According to CBInsights analysis of 15 of the largest tech IPOs since 2022 shows that the majority (10 out of 15) have either maintained or increased their value post-listing, offering encouraging signs for future tech IPOs.
3) Mega-rounds dropped
In Q3 2024, the proportion of megarounds - funding rounds of $100 million or more - dropped significantly, accounting for only 39% of total investment volume, down from 45% in Q1 and 47% in Q2. This sharp decline in megarounds was a primary factor contributing to the overall decrease in funding levels during the quarter. As a result, total venture capital activity in Q3 2024 experienced a noticeable slowdown.
4) AI remains #1 investment trends
AI startups are capturing nearly a third (31%) of all venture funding right now — the second-highest share on record, following Q2’s 35%.
Within AI, a company’s age and stage don’t always correlate to the size of financing rounds according to CBInsights analysis. One of the largest rounds in Q3’24, for instance, was a mammoth $1B deal to Safe Superintelligence (SSI) — an early-stage startup founded in June by OpenAI co-founder Ilya Sutskever. The company has just 10 employees.
The US and more precisely Silicon Valley is the clear leader in AI startups with a share of 43%.
5) Regional breakdown: Silicon Valley dominance with Europe building momentum as well as India & Middle East
The recent AI boom has led to a significant concentration of capital in Silicon Valley, which now hosts over one-third of all U.S.-based AI startups. In 2024, Silicon Valley’s share of U.S. venture funding across sectors hit a high of 41%. During Q3 2024, startups in the region raised USD 10.5bn, accounting for 19% of global venture funding, nearly matching the total for all of Europe or Asia. This activity is largely driven by early-stage deals, with more than two-thirds of Silicon Valley’s transactions occurring at the seed or Series A stage, underscoring a vibrant startup ecosystem.
In Europe, venture funding reached USD 11.0bn in Q3 2024, a 21% decrease from the previous quarter. Despite this dip, European venture funding is on an upward trajectory, with its global share rising from around 16% to 20% over time, hitting 20.1% in Q3 2024. Europe’s share of deal count has also increased, now accounting for 25% of global deals. Within Europe, Germany saw a notable 38% growth in investment volume versus a weak 2Q, raising $2.2 billion and representing 20% of the Europe’s total.
Globally, while the U.S. continues to lead in absolute funding, countries like the UAE, Israel, and Singapore outperform in terms of venture capital relative to GDP. The UAE, for instance, saw USD 3 bn in startup funding over the past year, with a VC-to-GDP ratio of 1/158, outperforming larger economies.
Meanwhile, India has emerged as a strong player in Asia, contributing 40% of the region’s venture funding, with USD 4 bn deployed in Q3 2024 alone.
6) Corporate Venture Capital remain all-weather investors
In Q3 2024, Corporate Venture Capital and Corporate investors continued to play a significant role in the global venture capital market, despite overall softening in funding levels. CVC-backed deals made up approximately 17% of total venture capital funding, reinforcing their importance as strategic partners in the innovation ecosystem. According to PitchBook data, CVC investments were concentrated primarily in sectors such as AI, FinTech, and HealthTech, mirroring broader venture capital trends, while corporate investors increasingly focused on aligning their portfolios with digital transformation and sustainability goals.
CVCs also maintained their strategic importance as more than just capital providers, with corporates using these investments to gain access to emerging technologies and innovation ecosystems and providing knowhow, partnership, access and reputation to startups.
7) My personal outlook / predictions:
With one quarter left, I am taking stock of my Venture Capital predictions I made end of last year for 2024:
1) I anticipate the VC deal volume to remain relatively stable in 2024, albeit with some fluctuations: 2024 USD 250bn (+/- 10%)
👍🏼 Status: With 184.8bn in YTD 3Q2024, we are well very much on track reaching USD 250bn (+/- 10%)
2) I foresee the decline in deal counts reaching its bottom at around the current level of 6,000 deals with no quarter in 2024 with less than 6,000 deals
❓Status: 3Q2024 deal count declined reaching 6,056, just over 6,000 level. Despite the drop, I still foresee it will remain above 6,000 in 4Q too despite holiday season.
3) I won't expect a real comeback of mega-rounds in 2024 yet with annual funding < USD 150bn (lower than 2020, 2021 and 2022 levels)
👍🏼 Status: While 1H showed increasing megarounds deals driven by AI, the share fall back to 39% in 3Q. Megaround deals will be well below USD 150bn mark in 2024.
4) CVC and Corporate will remain committed and stable investor group with ~17% combined investment share
👍🏼 Strong activity by corporate investors reaching 17%. I am convinced, Corporate investors will maintain such high activity levels through-out 4Q2024.
#Corporateventurecapital #venturecapital
Disclaimer: The views and opinions expressed in this post and under my Corporate Venture Capital newsletter are solely mine as the author and do not necessarily reflect the official policy, position, or opinion of my employer. Any content provided are my personal views and not investment advice.
In the recalibrated venture capital landscape of 2024, those who align with AI and strategic patience may shape the next epoch of innovation.