Market Outlook of VC Industry in 2024 Q3 by Hive Ventures

Global VC Investment Declines After 3 Consecutive Quarters of Growth

Surprisingly, the 2024 Q3 VC investment amount dropped by nearly 17% compared to 2024 Q2. This outcome was unexpected, especially since the Federal Reserve had already announced interest rate cuts in September 2024, and the U.S. stock market continued to rise from 2024 Q2 to 2024 Q3 with the Nasdaq increased 2.5%. Although, there are signs of a soft landing for the U.S. economy, it remains stable without signs of recession. However, the performance of VC investments tells a different story. In addition to a sharp 17% drop in total investment, the number of deals only fell by 3%, suggesting that the average deal size has shrunk.

First, it’s clear that the decline originated in the U.S. and Europe. Quarterly investments in the U.S. and Europe dropped significantly compared to 2024 Q2 while other regions remained stable or slightly increased. Notably, U.S. investments saw a sharp decline from USD$40.2B to USD$29.8B, a 26% drop. This USD$10.4B difference nearly accounted for the global VC investment decline in 2024 Q3. Another major gap was in mega deals. In 2024 Q2, there were 114 deals over USD$100M, but in 2024 Q3, there were only 98, and the total value fell from USD$31.9B to USD$21.5B. This points to the fact that the decline in 2024 Q3 is mainly concentrated in the U.S., Europe, and mega deals.

So, why did these two areas see a decline?

Investment Slowdown Driven by Caution Ahead of the U.S. Presidential Election and a Sluggish IPO Market, Despite Robust AI Interest and High VC Capital Availability

One reason we can rule out is a reduction in AI investments. AI still accounted for 31% of total investment in 2024 Q3, maintaining a high level of interest. The market is still buzzing with AI. Another factor we can dismiss is geopolitical issues — ongoing conflicts in Ukraine and the Middle East haven’t changed, and there’s been no escalation. Additionally, U.S. VC dry powder remains high, with over USD$300B still available according to Pitchbook’s 2024 Q3 data, indicating that VC firms aren’t running low on capital.

One remaining wildcard is the U.S. presidential election. It’s possible that VCs slowed down their investments in 2024 Q3, adopting a wait-and-see attitude, hoping for more clarity after the 2024 November election before making further decisions.

Another observation is that the IPO market remains sluggish. The number of IPOs in 2024 Q3 dropped compared to 2024 Q2, and there’s been no improvement in IPO quality. The largest IPO in 2024 Q3 was Lineage, a cold chain storage company, with a market value of USD$18B. As we enter 2024 Q4, which is traditionally a slow season for IPOs, it’s likely that the exit market will remain subdued. Nonetheless, we are more optimistic about the outlook for VC investments in 2025 compared to 2024 and 2023. There are several reasons for this. First, we believe that falling interest rates will boost investment, as we highlighted in the previous management report. There is a strong correlation between interest rate fluctuations and the investment market, and periods of falling rates are generally when VC investments thrive. Second, we anticipate that the exit market will improve in 2025 compared to 2024, which will restore confidence in late-stage VC investments and, in turn, lead to a rebound in early-stage investments.