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Q1 2024 Venture Capital: Market Trend Analysis and Expert Opinion

Updated: Apr 25

As we navigate through the first quarter of 2024, the venture capital landscape presents a mix of challenges and cautious optimism. Drawing insights from the CB Insights Venture Report for Q1 2024, this blog dives into the detailed trends and statistics observed. Our General Partners, Teppei Tsutsui, and Yasushi Komori, give expert opinions on the dynamics shaping the venture capital industry.


Q1 2024 venture capital trends and statistics


Global funding overview


  • Total funding and deals: The global venture funding for Q1 2024 stood at $58.4 billion across 6,238 deals. This represents a continuing cooling market since the decrease from last year.


  • Leading sectors: Significant investments were made in technology sectors, particularly in internet software and services. The spotlight on AI and data integration sectors underscores a continuing interest in high-tech innovations.


  • Emergence of new unicorns: New unicorns that emerged in this quarter include companies like Figure and Bending Spoons, which managed to attract investor interest despite broader market challenges.




  • Exit trends: There has been a noticeable decrease in IPOs and M&A activities, which are traditional liquidity routes for venture investments. This trend impacts the exit timelines and return profiles for many investors.


US market trends


  • Overall funding: The United States dominated the venture scene with $34.2 billion funded across 2,430 deals, highlighting its central role in the global venture ecosystem. Both the funding level and number of deals were higher than the last quarter but lower than the same quarter of last year.


  • Deal stages: The US market demonstrated a strong inclination towards early-stage investments, which constituted 61% of all deals, indicating a vibrant environment for new and emerging companies.



  • Significant deals: Significant funding rounds included $2.8 billion for Anthropic and $1.5 billion each for Epic Games and Generate Capital, underscoring the scale and scope of investments in established yet innovative companies.



Expert opinion by Teppei Tsutsui and Yasushi Komori


Market sentiment and outlook


The current venture capital sentiment is notably low, with a prevailing view that the market may hit bottom by the middle of next year and maintain this low until then. Valuations for seed rounds are slightly lower than in Q1 of the previous year, reflecting the market's cautious stance.


There’s an anticipation of potentially lower interest rates by late this year or early next year, which could lead to increased venture activity as borrowing costs decrease. Many funds raised capital when the market was good in 2021 and 2022 but can’t deploy it, especially in the later stages, due to the fear of seeing a lack of exit activities. They’re still waiting, patiently, sitting on a large amount of war chest. 


Additionally, as the US presidential election is being held later this year, there’s uncertainty in the political situation, economic policy, and capital market reaction. We assume that investors will somehow stay in a wait-and-see mode, and there won’t be a significant investment uptick until then.


Strategic investment recommendations


Given the lower valuations, now is considered a strategic time for venture capitalists to make new investments. We see it as an opportunity to enter the market or expand portfolios at a lower cost.


Reflecting on historical examples like Uber and Airbnb, which both started during financial downturns, it’s noted that crises often provide fertile ground for disruptive startups to emerge. Investors are encouraged to focus on startups that not only innovate but also show potential for rapid growth and profitability.


Long-term outlook


We predict that the venture capital environment will remain challenging for the next six to 12 months, as inflation rates are still high and interest rates are elevated. However, most analysts predict that interest rates will gradually decrease as inflation subsides. It will improve within one and a half to two years, pivoting towards more sustainable growth and profitability-focused business models.


Going forward, the investment market is expected to be more focused on companies that can demonstrate solid revenue generation and sustainable growth, moving away from purely speculative investments and the “grow at all costs” attitude.


Conclusion


The first quarter of 2024 marks a period of recalibration for the venture capital market, with strategic opportunities for those who navigate it wisely. We suggest stakeholders to stay informed, agile, and ready to adapt to a rapidly changing economic landscape.


In this environment, GFR Fund is ready to partner with startups, venture capitalists, and limited partners who are shaping the future of technology and innovation. With our deep expertise and a focus on building sustainable, growth-oriented business models, we’re ready to navigate these complex waters together with our ecosystem.

 

If you're an investor or LP looking for partnership opportunities, reach out to us at hello@gfrfund.com. For startups, please pitch to us by filling out this form. We'd love to hear from you!

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