NXTGEN

Q2 24 GLOBAL VC TRENDS

A Summary of critical data emerging from the Q2 24 global VC data

The latest data shows that the worst is possibly over for the VC industry, after a decline that started early in 2021. After all, Crunchbase’s data below shows that funding into global startups has increased for the second consecutive quarter, with quarterly growth of 16% from Q1 2024, and, more importantly, annual growth of 12% from Q2 2023. However, before the VC industry pops any champagne corks, let’s look deeper into the data. 

Is this a false dawn?

A few factors that should make an observer cautious before declaring that the VC industry has definitely started a sustainable turnaround include:

• When looking at the total global deal value of investments into startups for H1 2024 versus H1 2023, there was a 5% decline, so Q2 recovery comes off the back of a particularly weak Q1.
• Startup investing is being abnormally buoyed by AI investments, which accounted for 30% of the market share of deal values in Q2 2024, after a doubling in value from Q1 2024. Furthermore, a staggering 26% of the 30% comes from just two mega-deals: CoreWeave and xAI, both in the US market. Notably, in North America, deal volume showed a 32% decline annually, while deal value was up 35% over the same period, indicating how these two mega-deals drove the value data.

• One of the biggest initial causes of the VC slump – high interest rates in the US – has not yet changed. While the US inflation rate has steadily retreated from the high of 9% in June 2022 to only 3% at the latest reading, interest rates remain stubbornly high (see chart below). Until interest rates decline (or show strong signs of doing so soon), investors’ risk appetite has historically remained muted, and this might explain why on the current run-rate, VC fund-raising is tracking to reach its lowest level since 2019.

• Exit activity has not yet picked up meaningfully. While there have been a few IPO’s so far in 2024, one can hardly argue that it’s anything more than a trickle of IPOs. M&A activity is where exits are more likely to come in the short-term, and there has been a pick up in some large M&A deals, which is encouraging, but it remains early days. 

Region-specific data

The Crunchbase data portrayed in the table below shows that Q2 performance across almost all regions indicated signs of a positive turnaround, with the notable exception being Asia. The interesting take-outs from the Q2 regional data include:

• Quarterly funding in Europe was higher than in Asia for the first time in 10 years. 
• LatAm saw a welcome recovery in deal value after an exceptionally weak Q1 2024. Encouragingly, though, positive annual growth of 17% shows that this data point wasn’t just growth off a weak Q1 base.
• AI was a big driver in North American and European markets, amounting to 37% and 21% of total deal value in the regions respectively. LatAm was driven by a sharp recovery in Fintech activity (all four of the biggest deals in Q2). Fintech is historically the biggest driver of the LatAm region, accounting for 43% of total deal value in 2023, 2.6x more than the next nearest vertical. 
• A sobering view of a VC market that isn’t driven by AI mega-deals can be seen in the Asian deal value chart below. This was the worst quarter since Q4 2015 in Asia and was dragged down by China, although India (the second largest market) also saw negative annual growth in Q2 2024. A lack of big AI deals is seen as a primary reason for the decline.

Final thoughts

While we are encouraged that global VC deal values are starting to go in the right direction across almost all regions, we remain only cautiously optimistic that it is the beginning of a sustained uptick. Even if this is a turnaround, the recovery is unlikely to be balanced. For example, in markets that are not driven by the current AI rush, the factors that are likely to continue driving VC deal activity will probably still revolve around the high interest rates and limited exit opportunities. Until those factors change, the environment for VC investing will remain tricky, probably leading to lumpy quarterly data.