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The venture capital (VC) outlook for 2024 looks promising. Trends like the rise of women founders and a focus on socially responsible investments drive growth. The surge in tech mergers and acquisitions and advancements in artificial intelligence are also expected to fuel the VC industry.
Though the past few years have been challenging for venture capital, many investors predict a strong rebound in VC fundraising this year. Key industries gaining traction include healthcare, information technology, and business and financial services. Other sectors attracting significant VC interest are technology, biotech, renewable energy, fintech, real estate, and e-commerce.
In this article, we’ll cover recent changes in the venture capital landscape, highlight ten key trends in VC investing, and explore the top industries venture capitalists fund in 2024.
The VC landscape over the past few years
Venture capital funding has had its ups and downs in recent years, but overall, the industry has seen strong growth, with large investments focused on technology, healthcare, and innovation.
The VC sector has also seen an increase in mega-rounds—funding rounds of over $100 million—and a rise in unicorn startups.
Since the pandemic, digital transformation trends have boosted investments in remote work technologies and telehealth as businesses adapt to new ways of working and providing services.
There has also been a growing emphasis on diversity and inclusion within workplaces and the venture capital industry. Sustainable investing is rising, with many startups focused on eco-friendly solutions.
Here’s a quick summary of the venture capital landscape from 2021 to 2023:
2021
After the pandemic, venture capital activity surged, especially in the tech and healthcare sectors. In 2021, VC funding reached a record $128.3 billion—a massive 75% increase from $73.6 billion in 2020. Additionally, 27% more deals were completed compared to the previous year.
2022
In 2022, global VC funding slowed, with numerous public exits by VC-backed companies. Despite this, venture funds raised record levels of capital. While most sectors saw a drop from 2021, the energy sector remained strong.
2023
2023 marked the lowest global VC fundraising year since 2015, as investors were cautious about funding businesses without clear growth or profitability. The market experienced a noticeable decline at all stages.
10 Trends in VC Investing
Looking ahead to 2024, here are ten important venture capital trends that startup founders should keep in mind:
1. Tech mergers
2024 is expected to be a big year for tech mergers and acquisitions. Both public and private tech companies are set to have access to significant capital, allowing them to acquire new customers and form valuable partnerships. According to Jeremiah Gordon, General Counsel of CapitalG, startups facing fundraising challenges due to high interest rates and cautious VC valuations may consider selling as a viable option. At the same time, larger tech companies will use their strong financial positions to acquire customers, expand product offerings, and strengthen partnerships.
2. Cross-border payments
Payments have seen significant growth in recent years, with cash usage declining. Fintech companies are introducing new ways to transfer money and make quick payments. Startups use technologies like blockchain, digital wallets, and AI to improve cross-border payments and reduce fraud.
Fintech startups focusing on cross-border payments are expected to attract more VC investments due to the rise of digital wallets and real-time payment systems. VCs may also be interested in e-commerce startups that provide specialized payment solutions.
3. Bridge rounds for later-stage startups
Startups that have reached the later stages and reduced their expenses may attract new investment through bridge rounds. These temporary funding rounds help startups cover the gap between major funding rounds. This trend is expected to continue in 2024, as it highlights investors’ financial strength and potential for growth.
We may also see more strategic bridge rounds aimed at product launches and expanding into new markets. Since market trends and economic conditions significantly affect bridge rounds, investors may adjust their strategies to match these changes.
4. Investment amounts
Venture investments are expected to stabilize in 2024, with financing rising due to the growth of AI. Insider rounds are predicted to decrease from around 38% to 25%.
VC funding is expected to rise globally, with late-stage startups likely to attract large investments. Mega rounds may also increase, driven by growing technology, healthcare, and fintech sectors.
Economic conditions and tax incentives will also play a role in influencing the amount of VC funding.
5. Private equity
Private investment pricing is expected to improve slightly in 2024, with average discounts around 10%. Market activity is also anticipated to rise, contributing to growth in the private equity sector.
There has been increasing interest in buyouts and minority investments, especially in technology and innovation. Private equity firms are particularly focused on tech-driven sectors, and this trend is expected to continue.
6. Socially responsible ventures
As sustainability and clean energy take center stage, the industry is expected to see more investments in eco-friendly ventures. Many sustainable startups are set to emerge in 2024.
A key factor for investors is companies that focus on environmental, social, and governance (ESG) principles. Venture capitalists who value social responsibility will likely prioritize startups with diverse leadership teams that promote an inclusive workplace.
7. Unicorns
In 2024, unicorns—startups valued at over $1 billion—will likely face pressure to raise capital. PitchBook predicts that around 30-40 unicorns may shut down, with a 10-15% decline in active unicorns in the US.
While technology companies have traditionally led the unicorn scene, we may see more diversity this year, with sectors like healthcare, fintech, and clean energy gaining attention.
Additionally, unicorns are expanding internationally, and investors are particularly interested in startups with plans for global growth.
8. VC secondary increases
VC secondary markets refer to selling existing investment stakes in VC funds, usually by limited partners, to offer liquidity to investors seeking an early exit. They are expected to grow in 2024, with more opportunities for liquidity and adjusted price expectations for transactions.
Private equity secondaries are also projected to reach record levels. The rise of direct listings and Special Purpose Acquisition Companies (SPACs) may impact the VC secondary market. Institutional investors like pension funds and family offices are also expected to play a larger role in these markets.
9. Women founders
In 2023, the VC industry saw a rise in women investors, and it’s expected that 2024 will bring even more women-led VC funds focusing on diversity. At the same time, attention has been drawn to the gender funding gap, and efforts are underway to increase financial support for women-led startups.
Women-led unicorns are expected to rise as networks supporting women founders grow. Investors focusing on diversity and inclusion will be particularly interested in women-led startups.
Additionally, the ongoing expansion of STEM education for girls could play a key role in encouraging more women to become entrepreneurs.
10. Government regulations on AI startups
As we enter 2024, government regulations on AI startups will play a significant role. Stricter rules on data privacy, algorithm transparency, and ethical issues could affect investments in the sector, causing investors to adopt a more cautious approach.
Conclusion
2024 is an exciting year for venture capital, with several emerging trends shaping the landscape. The VC industry is poised for growth, from increased investments in tech, healthcare, and clean energy to the rise of AI-driven startups and women-led ventures. While economic conditions and government regulations may influence investment strategies, focusing on diversity, sustainability, and innovation will drive positive change. As markets continue to evolve, startups that adapt to these trends and remain agile will likely find new opportunities for funding and growth.
FAQs
Q1: What are the key trends in VC fundraising for 2024?
Ans: In 2024, key VC fundraising trends include increased investment in sectors like technology, healthcare, fintech, and clean energy, as well as the growth of AI-driven startups. There’s also a focus on diversity and inclusion, with more women-led VC funds and startups expected. Bridge rounds for late-stage startups and secondary markets for VC investments are likely to rise as well.
Q2: How will AI impact VC fundraising in 2024?
Ans: AI is expected to play a significant role in VC fundraising in 2024, with increased investment in AI-driven startups. As AI technologies continue to grow, VCs will be eager to fund innovative solutions across various industries, including healthcare, fintech, and automation.
Q3: Will women-led startups attract more VC funding in 2024?
Ans: Women-led startups are expected to see more investment in 2024. With the growing focus on diversity and inclusion, networks supporting women entrepreneurs are expanding, and VCs prioritizing these values will find women founders particularly appealing.
Q4: What sectors are expected to receive the most VC investment in 2024?
Ans: Sectors such as technology, healthcare, fintech, clean energy, and AI are expected to receive the highest levels of VC investment in 2024. Sustainable startups focused on eco-friendly solutions will also see a rise in funding.
Q5: What are bridge rounds, and how will they impact VC fundraising in 2024?
Ans: Bridge rounds are interim investments that help late-stage startups bridge the gap between larger funding rounds. In 2024, these rounds are expected to increase as investors continue to support startups needing additional capital before their next big round, especially in uncertain economic conditions.
Q6: How will government regulations affect VC investments in AI startups?
Ans: Stricter government regulations around AI, including data privacy and ethical concerns, could make investors more cautious when funding AI startups. However, regulations will also drive the need for innovation in compliance-focused technologies, which may create new investment opportunities.
Q7: Will global startups attract more VC funding in 2024?
Ans: Yes, global expansion is a growing trend. Investors are looking for startups with plans for international growth, and the demand for scalable businesses is higher. Unicorns (startups valued at over $1B) also expand globally, leading to more opportunities for cross-border VC investments.
Q8: What are secondary markets, and why are they important for VC funding in 2024?
Ans: VC secondary markets involve the sale of existing investment stakes in VC funds, allowing investors to exit earlier than planned. This market is expected to grow in 2024, offering liquidity and flexibility for investors. Secondary markets will also see increased participation from institutional investors like pension funds and family offices.
Q9: How will economic conditions affect VC fundraising in 2024?
Ans: Economic conditions, including high interest rates and inflation, are expected to influence VC fundraising. VCs will likely adopt a more cautious approach, focusing on sectors promising for profitability and growth, such as tech and sustainable industries.
Q10: What role will sustainable investing play in VC fundraising in 2024?
Ans: Sustainable investing will continue to be a major theme in 2024, with more venture capital flowing into eco-friendly startups and clean energy initiatives. As sustainability becomes a priority for consumers and governments, VCs will increasingly seek to fund companies focusing on long-term environmental and social impact.
