DC venture capital market sizzles in Q4: Top raises, full stats (2024)

FAQs

What is the outlook for VC funding in 2024? ›

Following a turbulent 2023, Pitchbook makes several positive projections for 2024: Positive economic signals in 2023 indicate a comeback in IPOs in 2024. U.S. VC fundraising is expected to increase, making it stronger than 2023 and comparable with 2020 figures.

Only 0.05% of startups get VC funding.

Investing in VC has long been a best practice of institutional investors and ultra-high net worth individuals. We think that accredited individuals should also consider adding this asset class to their portfolio to take advantage of its diversity and return characteristics.

The median pre-money valuation on primary Series A fundings was $44 million in Q4. Just like at the seed stage, this was the third-highest quarterly median since the start of 2020. After staying flat around $35 million for several consecutive quarters, valuations have now grown significantly over the past two quarters.

Fundraising at Lowest Level Since 2017

In fact, 2023 was the worst year for VC fundraising since 2017, when 662 funds raised only $46.8 billion. Without exit activity and the return of capital to limited partners, fundraising will continue to suffer.

Venture capital funds typically have long tenures, beginning the first closing and running for 8-10 years. Fund managers usually seek pre-determined extension periods (2-3 years for example) to allow them for a smooth exit from all investments. Early termination is also possible, based on certain trigger events.

They expect a return of between 25% and 35% per year over the lifetime of the investment. Because these investments represent such a tiny part of the institutional investors' portfolios, venture capitalists have a lot of latitude.

And yet, despite all that cash flowing into VC-backed companies, twenty-five to thirty percent of them will fail. One in five fail by the end of their first year; only thirty percent will survive more than ten years.

The Consequences of a VC Backed Startup Failure

For starters, VCs may lose the money they invested in the failed startup, as well as any fees that were associated with the investment.

Cons of Venture Capital:

Loss of control: When a startup takes on venture capital, they give up a portion of its ownership in exchange for the funding. In most cases, this can result in a loss of control over the company's direction.

Who owns venture capital? ›

VC firms typically control a pool of funds collected from wealthy individuals, insurance companies, pension funds, and other institutional investors. Although all of the partners have partial ownership of the fund, the VC firm decides how the monies will be invested.

For investors, this type of private equity investing can be very profitable, but there's also great risks involved. Only 10% of startup companies actually succeed, so you could lose part or all of your investment.

Carta CEO Henry Ward claimed that an employee had violated internal policies, affecting three companies, including Linear. He also said Carta had launched an investigation and reached out to the impacted founders, and on Monday, that it would be exiting its secondaries business entirely to avoid conflicts of interest.

A 409A valuation is an appraisal of the fair market value (FMV) of the common stock of a private company by an independent third party. Startups typically pay for these assessments and then use the findings to inform the price at which employees can purchase shares of the company's common stock.

Cash raised reflects when the company received the money, not where the money has moved since. On the other side of things, if there is more cash raised for the round than there should be, it may be that a convertible was converted into shares and was accounted for as Cash paid rather than Debt canceled.

Instead of intuition and personal network, VCs will more often rely on data and analytics, when making an investment decision. Machine learning and artificial intelligence will help them. Investors will spend more time building relationships with their portfolio startups and creating a community around them.

In many cases, they've stopped investing altogether—global VC funding was down 22% in the second quarter according to our report—to focus on their existing portfolio. VCs are looking at their slate and may be asking whether their companies are in good operating order and in a good state of being capitalized.

Although venture capital has grown dramatically over the past 10 years, it still constitutes only a tiny part of the U.S. economy. Thus in principle, it could grow exponentially.

Venture capital dollars declined in Q2 2023 but there are signs of life in early-stage activity. VC-backed companies raised $29.4 billion in Q2 2023, a drop from the $44.4 billion raised in Q1 2023. Economic uncertainty and low IPO activity continue to hinder the late-stage market.