Overall outlook for Q1 2024
While the broader macroeconomic backdrop seems to be stabilizing, that has not translated to the venture capital ecosystem. Startups continue to be challenged by the valuation overhang. That takes time to work through, and it’s painful, especially for founders who have never been through a down cycle like this, which hasn’t happened in over 20 years.
As mentioned above, we anticipate that many of today’s startups will need to begin fundraising again, after being out of the market the last couple of years. We expect this will translate to a pickup in VC activity. Given the environment, founders, especially those already in the venture pipeline, will need to convey a compelling growth story and market-disrupting technology to compete for investment.
On the bright side, the US economy does appear to be executing a soft landing. And as we noted earlier, the IPO market is improving after a few challenging years. This market will reward companies that have attracted experienced team members, built solid internal controls and demonstrated a path to profitability. Companies with an exciting value proposition, especially in AI, will continue to get attention and investor dollars. A pickup in public market activity will recycle capital back into the ecosystem and provide support to the companies we expect will be fundraising again in the coming months.
It’s too soon to determine whether the quarter-over-quarter increase in VC activity in Q1 2024 signals that the market has finally hit bottom. Investors will continue to be selective when deciding which startups to fund. While we don’t expect a return to the heady days of 2020–22, continued improvement in the public markets may encourage more investment.
