PitchBook released their US Venture Capital Outlook in a comprehensive Midyear Update. In a recent update, the research-focused company noted that expectations for the turnaround of the VC market in 2024 were not particularly high.
PitchBook noted that the headwinds which triggered the market downturn were “well-entrenched in the economic system, and that no balance had been found to offset heightened risks.”
PitchBook stated that during the first six-months of 2024, inflation remained “sticky, interest rates stayed at the high levels they ended 2023 with and geopolitical issues kept a haze over the horizon.”
PitchBook’s extensive update revealed that ventures have been slow, as expected. Overall, “exits have been poor despite several high visibility IPOs.”
The first quarter of 2018 was one of the slowest since 2017. Q2 has also been a struggle, despite several big-name VCs raising billions of dollars.
Dealmaking is heavily reliant on AI. It continues to “make headlines with its high valuations and large transactions.”
The PitchBook analysts noted that “more than 55,00 companies are currently VC-backed” and many companies have no other options to continue their growth and development.
The report also stated that many of the M&A transactions they collected in 2024 were so small, “that transaction values went unreported.”
As companies negotiate with investors, down rounds are increasing.
Venture market resets can take a long time.
According to the PitchBook Update, valuations are still relatively high, particularly “for AI companies and the aggregate value for unicorns is higher than before.”
The lack of returns is one of the effects of “the slowdown that is now adding excessive pressure on the market.”
PitchBook data shows the rate of distribution “back to LPs” is at its lowest level since 2009.
The market is “exponentially larger than it was then, increasing the exposure of LPs to VC.” With fewer returns, and less capital to recycle back into the market, “the full impact of the downturn may still be ahead.”
As mentioned in the Update, the Federal Reserve has not raised rates since July 2023. “This reinforces expectations that the central banks current cycle of rate increases has ended.”
Researchers observed:
The Global Supply Chain Pressure Index shows that there is a correlation between supply chains and inflation. The Global Supply Chain Pressure Index shows a correlation between supply chain pressure and inflation. As of October 2023 the index has dropped significantly from its highest peak in December 2021 .”
You added:
The Cboe Volatility Index, also known as Wall Street’s fear gauge, shows that market volatility is on a downward trajectory. The VIX is currently at 13, well below its long-term average of 18 and much lower than the peaks seen over the last 18 months, such as the 37.52 in March 2022 .”
PitchBook stated that lower volatility on the investor’s side “reduces perceived risks associated with IPO investment by minimizing concerns over sudden and adverse market fluctuations, thus potentially encouraging more participation.”
PitchBook said that it was “difficult to say the IPO markets have reopened, or even to call H1 activity a slight opening window.”
Four large tech IPOs have been completed, “for an exit value of about $17 billion. But four is a very small number.”
Only 22 companies had completed IPOs by May (at the writing of this article), so the question to ask is “why?”
Inflation has remained “above Fed’s 2% goal.”
This has sunk the “idea that a large number of rate reductions this year would, theoretically boost the market.”
Now, the expectation of the number cuts has been “lowered and pushed back.”
Researchers also shared:
Public listings generated above 15.4% of the annual public exits in 2021 but dropped to 5.8% and 8.4% in 2022 and 2023 YTD, respectively, as public market investors shied away from riskier tech bets. Public listings accounted for over 15.4% of all public exits annually in 2021, but this number dropped to 5.8% in 2022, and 8.4% by 2023 YTD as investors shied away from more risky tech bets .”