Navigating the Global Investment Landscape: Insights into the Q3 2023 VC Market
Global Exit Trend Shows Signs of Recovery
During 2023 Q3, the global IPO market saw signs of recovery, although it is still well below the peak observed in 2021. There was a noteworthy 24% increase compared to 2023 Q2, with the number of companies going public rising from 102 to 126. Notably, the United States witnessed three significant IPOs, including ARM (USD$67.9B), Instacart (USD$9.9B) and Klaviyo (USD$9.2B). This resurgence of IPO activity is an encouraging development, particularly for late-stage investments.
Source: CB Insights
The recent stagnation in the IPO market, which had a significant impact on the deceleration of VC investments over the past two years, is now displaying promising signs of revitalization.
As we previously anticipated, the resurgence of IPOs is expected to stimulate late-stage investments, subsequently reigniting early-stage investments, which had remained relatively static. Additionally, this renewed interest in IPOs is likely to reignite the M&A (Mergers and Acquisitions) landscape. Consequently, unless significant unforeseen events occur (and the impact of geopolitical tensions in the Middle East remains uncertain), we can expect a gradual resurgence in the VC market.
In 2021, the IPO market thrived, particularly during the height of SPACs’ popularity. However, since then, the IPO market lost momentum, especially in 2023. Comparing the number of IPOs in 2023 Q3 to 2022 Q3, a significant decline of 45% has been noted. This decline can be attributed to various factors, including overall economic instability, inflation, interest rate hikes, and geopolitical influences.
It’s worth mentioning that Pitchbook reports there are currently 75 companies in the queue for IPOs, including well-known entities such as Stripe, Chime, Reddit, and others. This certainly piques the interest of all VC investors, who will closely monitor the 2023 Q4 IPO market for signs of an upward trend.
Similar to our previous quarterly analysis, the resurgence of VC investments hinges on the condition of the IPO market. Once the IPO market stabilizes, it has the potential to boost VC investor confidence, accelerate late-stage investments, and contribute to an overall resurgence in the VC market.
Global VC Investment Shows Signs of Hitting Bottom with Small Positive Indicators
Source: CB Insights
In the previous quarter’s analysis, we had already forecasted that the VC investment decline had likely hit its low point. Global VC investments in Q3 increased by 12% compared to Q2, while the number of global investment deals decreased by 12%. This increase in investment amount, but decrease in the number of deals can be attributed to the growth in late-stage investments in 2023 Q3, while early-stage investments experienced a decline. The count of mega-round fundings (those exceeding USD$100 million) expanded from 103 to 116, with the total sum rising from USD$20.2 billion to USD$29.6 billion. These late-stage investments encompass notable names such as Databricks (USD$504 million), Mapbox (USD$280 million), Cato Networks (USD$238 million), Hugging Face (USD$235 million), and others.
Source: CB Insights
From the above chart, it’s evident that investment amounts have increased across the board. The United States has seen an 8% rise, Asia has witnessed a 12% increase, and Europe stands out with the highest increase, a remarkable 24%.
This is a positive trend that preliminarily signals the notion that the VC market has reached its trough and presents an opportunity for recovery. However, in light of various macro factors, such as ongoing inflation, the Israeli-Palestinian war, and the recent extended US sanctions forbidding sales of Nvidia chips to China, it is important to note that there is still a lot of uncertainty in the market that could negatively affect this recovery.
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