Global VC activity declines in Q3 | NVCA first look

Global venture capital activity declined in the third quarter, confirming that 2024 will be another weak year for venture investments and exits, according to the Q3 2024 Pitchbook/NVCA Venture Monitor First Look.

By almost every count, Q3 was weak and 2024 overall doesn’t compare well in terms of number of deals, average deal size, VC fundraising, exits and dollar amounts raised. No particular region stood out as a strong performer, based on the report from Pitchbook and the National Venture Capital Association.

PitchBook’s lead VC analyst Kyle Stanford said in a statement that business in the U.S. showed its first quarter-on-quarter decline in a year. Just an estimated 3,777 VC investment deals were completed in the quarter, falling back to pre-2021 levels.

Median valuations for these stages are high, but there has been upward pressure on the number due to previous high multiple valuations for companies that are now finally coming back to raise again. Business value in the third quarter was the lowest of the year due to few oversized rounds being raised. Median deal sizes have also seen one
upward from 2023, but they are still well below the median from 2021. Stronger companies raising capital are getting bigger deals to counter the market downturn.

Exits continued to find little in terms of market success. Just 10 companies went through a public offering in the US, and $11.2 billion in total exit value was created during the quarter. The large number of firms still stuck in the private market is weighing distributions back to limited partnerships, creating additional challenges in VC.

Stanford said, in perhaps the only bright spot, that the rate cut by the Federal Reserve in September is a good step to balance the cost of borrowing and ease pressure on public markets that
can help start the registration process for companies moving forward. M&A remains slow due to both regulatory pressure and market conditions.

With a quarter to go, 2024 is on track for the second slow year. Just $64.0 billion has been raised in US VC funds. The low commitments are connected to the low distributions and poor returns that the strategy has given in recent years. Even if fundraising numbers are on par with 2020, the number of companies currently private, VC-backed, is increasing the strain on capital resources for the market. LPs have committed a large portion of capital to established managers and large funds, consolidating opportunities for companies and investment decisions with fewer groups.

Pitchbook VC analyst Nalin Patel said that in Europe in the third quarter of 2024, activity in VC deals was slightly lower than in the second quarter. Despite a rise in deal value in Q2, Q3 marked a slight decline. Nevertheless, activity has stabilized since declining from peaks. The number of deals fell marginally QoQ, further showing that fewer deals are closing as investors remain selective in their investments. There are encouraging signs towards the end of 2024, where monetary policy is loosened and inflation normalizes.

The exit value up to and including the third quarter of 2024 has exceeded the annual figure from 2023, giving optimism to the markets. Big VC-backed exits over the past two years have been few and far between, and a recovery could be on the horizon if public markets pick up. Risk remains a key factor for exits in terms of valuation, yield and volatility. Founders and investors would not want to lose significant amounts of value from portcos that have been built up over years.

The fundraising pace through the third quarter of 2024 is unchanged from the full-year view in 2023. Macroeconomic conditions and the tough exit environment have made fundraising tricky. Larger funds have closed in 2024 but capital is still locked up in portfolio companies that could depend on an exit. We could see fundraising pick up in 2025 if exits pick up and capital is recycled into VC funds.

In Asia, Stanford said venture activity continues to be slow in 2024. Just $14.9 billion was invested during
quarter, the lowest figure since the first quarter of 2017. The deep downturn in China’s risk market has had a major impact on the overall funding market. Other markets such as India and Southeast Asia have also not kept up. The number of deals in Asia in Q3 (2,143) was less than half the high mark in Q4 2021 (4,704), Stanford said.

Asia supported the highest exit value of any region in the third quarter, boosted by the IPO of India’s Ola Electric, which added more than $3 billion to the figure. Four of the six largest exits during the quarter took place in Asia, all IPOs.

Asia fundraising has remained muted, with only $53.1 billion committed to the strategy in Asian markets in the first three quarters of the year. 2024 is likely to close on par with 2023’s fundraising total of $84.8 billion. That would make the past two years the only years below $100 billion in total commitments for Asia since 2017.

And in Latin America, Stanford said business has been slow in the third quarter, a problem that much of the high levels of activity was dependent on non-domestic investors who have retreated to their classic strategies and investment geographies. The lack of exits from Latin American companies has increased the risk of investments in the market. Just $1.0 billion was invested in the market in the third quarter, and the year is expected to be just over $4 billion in total investment.

Similarly, but more aggravated than the rest of the world, the collection has suffered from the lack of exits and low distributions coming back to LPs. Because of this higher risk, LPs have sought to diversify into other markets or strategies. Only 10 funds have been closed in Latin America during the year. The year could be the lowest for total commitments in the past decade.