Explore the VC Market Outlook with insights from Hive Ventures
📉 Global VC Investment Hits Lowest Point Since 2019
It was somewhat unexpected that the VC investment amount for the Q4 of 2023 hit the lowest point in the past five years. The total number of VC investments in 2024Q4 was 6,169, slightly higher than Q3 by 0.9%. However, the quarterly investment amount decreased by 22% compared to Q3. Notably, the $51 billion invested in a single quarter is the lowest since 2019, pouring cold water on the expected resurgence in VC investment atmosphere.
Examining the quarterly investment amounts across regions in 2023, three significant areas — US, Asia, and Europe — all experienced a decline in the fourth quarter. While these regions saw a recovery in the third quarter, a contraction occurred in the fourth quarter.
Looking at the annual data, although the full-year data for 2023 was the lowest in five years, it was not far from 2019. However, compared to 2022, the overall number of investments decreased by 30%, and the total amount for the year dropped significantly by 42%. Currently, the VC investment atmosphere seems to have reached a bottom, and there’s uncertainty about when it will rebound. As predicted earlier, a key indicator to watch is the development of the IPO market.
Global Exit Trend Also Took A Hit
Contrary to expectations, the IPO market did not rise as anticipated. Instead, IPOs in Q4 saw an 18% decline compared to Q3. If the IPO market cannot recover, it will affect the resurgence of late-stage investment, further impacting the early-stage investment market and leading to an overall decrease in startups’ valuations. VCs will be constrained due to the lack of exit opportunities. Currently, the VC market is filled with conservative sentiment. According to the State of the Pre-seed and Seed VC Market Report by Forum Ventures, the average financing time has doubled. The time from Pre-A to Series A, which used to take about a year, extended to two years in 2023. Several reasons for this include:
· Late-stage uncertainty leading to risk aversion among VCs.
· Longer due diligence processes.
· Some VCs deliberately prolonging investment periods due to market changes, avoiding quick fund deployment, and anticipating the need to raise funds now.
The report notes a 10% year-on-year decrease in the average valuation of early-stage projects. KPMG’s Q4 VC Pulse Report also mentions some startups experiencing downrounds, predicting that flat rounds will become common in 2024.
The only positive news is that many investment institutions, including Goldman Sachs and Morgan Stanley, predict a Fed rate cut and controlled inflation, which should drive an upward trend in the stock market. However, the rise in the S&P500 or NYSE and Nasdaq does not necessarily indicate a recovery in the IPO market. The overall situation remains uncertain for startups and VCs.
In summary, 2024 does not appear optimistic, and numerous geopolitical factors will continue to influence the macroeconomic market in 2024. Apart from geopolitical issues, the most crucial factor is the U.S. presidential election in 2024. For the capital market, until the dust settles on the presidential election, investors are unlikely to make bold investment layouts and will adopt a conservative approach. Major decisions will likely be postponed until after the election. As the IPO market did not take off as previously predicted in Q4 2023, the first half of 2024 is expected to remain relatively stable, with significant changes anticipated post-election.
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