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The venture capital (VC) outlook for 2024 is highly promising. Key trends, such as the rise of women founders and a growing focus on socially responsible investments, are driving growth. The increasing wave of tech mergers and acquisitions, along with advancements in artificial intelligence, are expected to further boost the VC industry.
Although the past few years have posed challenges for venture capital, many investors predict a strong recovery in VC fundraising this year. High-growth sectors include healthcare, information technology, and business and financial services. Other areas gaining significant attention from investors include technology, biotech, renewable energy, fintech, real estate, and e-commerce.
In this article, we’ll explore the recent shifts in the venture capital landscape, highlight ten key trends in VC investing, and dive into the top industries that venture capitalists are focusing on in 2024.
The VC landscape over the past few years
Venture capital funding has experienced its share of fluctuations in recent years, yet the industry has seen significant overall growth, with major investments directed toward technology, healthcare, and innovation.
The sector has also witnessed a rise in mega-rounds—funding rounds exceeding $100 million—and a growing number of unicorn startups.
Post-pandemic, digital transformation trends have led to increased investments in remote work technologies and telehealth as businesses adjust to new operational models and service delivery methods.
Additionally, there has been a notable emphasis on diversity and inclusion in both the workplace and within the venture capital industry. Sustainable investing has also gained momentum, with numerous startups focusing on eco-friendly solutions.
Here’s a brief overview of the venture capital landscape from 2021 to 2023:
2021
Following the pandemic, venture capital activity saw a significant surge, particularly in the tech and healthcare sectors. In 2021, VC funding hit a record $128.3 billion, marking an impressive 75% increase from $73.6 billion in 2020. Furthermore, there was a 27% increase in the number of deals completed compared to the previous year.
2022
In 2022, global VC funding slowed, accompanied by numerous public exits from VC-backed companies. Despite this, venture funds successfully raised record levels of capital. While most sectors experienced a decline from 2021, the energy sector remained resilient and strong.
2023
2023 saw the lowest global VC fundraising since 2015, as investors grew cautious about backing businesses without clear paths to growth or profitability. The market experienced a significant decline across all stages.
10 Trends in VC Investing
As we look toward 2024, here are ten key venture capital trends that startup founders should be aware of:
1. Tech mergers
2024 is anticipated that be a major year for tech mergers and acquisitions. Both public and private tech companies are expected to have access to substantial capital, enabling them to acquire new customers and forge valuable partnerships. According to Jeremiah Gordon, General Counsel at CapitalG, startups struggling with fundraising due to high interest rates and cautious VC valuations may view selling as a viable alternative. Meanwhile, larger tech companies will leverage their strong financial positions to acquire customers, diversify product offerings, and reinforce strategic partnerships.
2. Cross-border payments
Payments have experienced substantial growth in recent years, with cash usage on the decline. Fintech companies are introducing innovative methods for transferring money and enabling quick payments. Startups are leveraging technologies like blockchain, digital wallets, and AI to enhance cross-border payments and reduce fraud.
Fintech startups focusing on cross-border payments are anticipated to attract more VC investments due to the rise of digital wallets and real-time payment systems. Additionally, VCs may show interest in e-commerce startups offering specialized payment solutions.
3. Bridge rounds for later-stage startups
Startups that have progressed to later stages and managed to reduce their expenses may secure fresh investment through bridge rounds. These temporary funding rounds help startups cover the gap between significant funding rounds. This trend is expected to persist in 2024, showcasing investors’ financial strength and growth potential.
We may also witness more strategic bridge rounds focused on product launches and market expansion. As market trends and economic conditions have a significant impact on bridge rounds, investors may adapt their strategies to align with these changes.
4. Investment amounts
Venture investments are anticipated to stabilize in 2024, with funding levels rising, particularly due to the expansion of AI. Insider rounds are projected to drop from approximately 38% to 25%.
Globally, VC funding is expected to see an upward trend, with late-stage startups poised to secure substantial investments. Mega rounds are also likely to rise, fueled by growth in the technology, healthcare, and fintech sectors.
Additionally, economic conditions and tax incentives will play a significant role in influencing the overall volume of VC funding.
5. Private equity
Private investment pricing is forecasted to see a slight improvement in 2024, with average discounts hovering around 10%. Market activity is also expected to increase, fostering growth in the private equity sector.
There has been a growing interest in buyouts and minority investments, particularly within the technology and innovation sectors. Private equity firms are especially focused on tech-driven industries, and this trend is projected to continue.
6. Socially responsible ventures
As sustainability and clean energy take the spotlight, the industry is poised for a surge in investments aimed at eco-friendly ventures. Numerous sustainable startups are expected to emerge in 2024.
A major consideration for investors is the focus on environmental, social, and governance (ESG) principles. Venture capitalists who emphasize social responsibility are likely to prioritize startups with diverse leadership teams that foster an inclusive workplace.
7. Unicorns
In 2024, unicorns—startups valued at over $1 billion—are expected to face increased pressure to secure capital. PitchBook forecasts that around 30-40 unicorns may shut down, leading to a 10-15% decline in active unicorns in the US.
While technology companies have historically dominated the unicorn landscape, we’re likely to see more diversity this year, with sectors like healthcare, fintech, and clean energy gaining significant attention.
Moreover, unicorns are expanding internationally, and investors are particularly interested in startups with strategies for global growth.
8. VC secondary increases
VC secondary markets involve the sale of existing investment stakes in VC funds, typically by limited partners, to provide liquidity for investors looking for an early exit. These markets are anticipated to grow in 2024, offering more liquidity opportunities and adjusted price expectations for transactions.
Private equity secondaries are also expected to reach record levels. The rise of direct listings and Special Purpose Acquisition Companies (SPACs) may influence the VC secondary market. Institutional investors, including pension funds and family offices, are likely to take a more prominent role in these markets.
9. Women founders
In 2023, the VC industry saw an increase in women investors, and 2024 is expected to see a rise in women-led VC funds, with a focus on diversity. At the same time, there’s growing attention on the gender funding gap, with efforts underway to enhance financial support for women-led startups.
Women-led unicorns are likely to increase as networks supporting women founders continue to expand. Investors focused on diversity and inclusion will have a particular interest in these women-led startups.
Moreover, the growth of STEM education for girls could be a driving force in encouraging more women to become successful entrepreneurs.
10. Government regulations on AI startups
As we head into 2024, government regulations on AI startups are expected to have a major impact. Stricter rules surrounding data privacy, algorithm transparency, and ethical concerns may influence investments in the sector, leading investors to take a more cautious approach.
Conclusion
2024 promises to be an exciting year for venture capital as several emerging trends are set to shape the industry. The VC landscape is primed for growth, with increased investments in tech, healthcare, and clean energy, alongside the rise of AI-driven startups and women-led ventures. While economic conditions and government regulations may impact investment strategies, a focus on diversity, sustainability, and innovation will drive positive change. As markets continue to evolve, startups that stay agile and adapt to these trends are likely to uncover new opportunities for funding and growth.
