Jun 3, 2024

Q1 2024: Are We Seeing the Early Signs of a VC Market Recovery?

Explore the early signs of a VC market recovery in Q1 2024 with our in-depth analysis of venture funding trends and what they mean for startups.

Venture Funding's Subtle Rise Amid Caution

Q1 2024 Investments Slightly Rise

After experiencing a startup investment slowdown in 2022 and 2023, the venture funding ecosystem shows signs of life in Q1 ‘24.

A recent Crunchbase report shows a slight uptick in investment activities in Q1. According to Crunchbase, Q1 2024 investment funding is up by 6% since the last quarter. For some, this small growth signals market recovery.

Quarterly Global Venture Dollar Volume (2021-2024), Crunchbase

Despite the increase, experts dub the Q1 2024 venture funding as the second lowest quarter in the last 5 years. The chart below shows Q1 2023 and Q1 2024 side-by-side with an apparent 20% decrease in global venture dollar volume.

Quarterly Global Venture Dollar Volume (Q1 2023 - 2024), Crunchbase

The preceding quarter, Q4 2023, holds the record for the lowest funding in the past six years. The data suggests a cautious yet slightly optimistic investor outlook as the industry progresses into 2024.

Quarterly Global Venture Dollar Volume (2023-2024), Crunchbase

A Closer Look at North America

North American startups collectively raised $35.2B in the first quarter of 2024. Global trends are mirrored in North America as venture funding shows 14% growth since Q4 ‘23. Similarly, the first quarter of 2024 shows a 27% decrease annually despite quarterly growth.

Quarterly North American Venture Dollar Volume (2023-2024), Crunchbase
Quarterly North American Venture Deal Volume (2023-2024), Crunchbase

Sectors Leading the Charge

AI and healthcare have emerged as the frontrunners in attracting venture capital. AI companies raised a formidable $11.4B in Q1 2024, accounting for approximately 17% of the total global funding.

Noteworthy investments include a $1B funding round for Beijing-based Moonshot AI by Alibaba Group, a $675M raise by humanoid robot company Figure in partnership with OpenAI, and a $600M investment in MiniMax, a Shanghai-based creator of AI companions, led again by Alibaba.

Surprisingly, healthcare and biotech surpassed AI in terms of total funding. Healthcare and biotech companies secured 24% of global funding for Q1 ‘24. The sector collectively raised $15.7B in the last quarter. This underscores the sector's importance as investors seek to contribute to significant biotech advancements.

Global Funding for AI and Healthcare Sectors in Q1 2024, Crunchbase

Investment Funding Across Stages

The distribution of venture capital across different funding stages reveals a diverse investment landscape:

  • Seed Stage: Global seed companies raised just over $7 billion, marking a decline of more than $1B from the previous year.
  • Early-Stage Startups: Exhibited resilience with a total funding of approximately $29.5 billion, indicating a 6% year-over-year increase.
  • Late-Stage Companies: Faced the largest pullback, with a 36% decrease in funding compared to the previous year.

The IPO and Exit Landscape

The initial public offering (IPO) market, while still uncertain, showed promising signs with successful listings from companies like Astera Labs and Reddit, which experienced significant first-day trading gains.

  • Astera Labs, a California-based semiconductor company gained 72% of shares on their first day of going public
  • Reddit, a long-awaited IPO increased, their shares by 48% by end-of-day trading.
North American IPO Activity Q1 2024, Tech Crunch

While the IPO markets flourish, venture giants such as Andreessen Horowitz and Y Combinator are raising substantial funds. Sources report Andreessen Horowitz raising a $7B fund in preparation for this year’s investment activities. On the other hand, Y Combinator is reportedly raising $2B across three funds.

Startup editorial, Axios reports:

A16z is targeting $6.9 billion for a master feeder fund, without a hard cap, with expectations of a final close in early April on between $6.5 billion and $7 billion. A16z no longer is raising dedicated early-stage or seed-stage funds, instead splitting that strategy by sub-sector. That includes 15% allocations for an AI infrastructure fund and an AI apps fund, plus 10% for an "American dynamism" fund.

Startup editorial Forbes also reports:

At a minimum, YC expects to raise $2 billion for the funds, but the fundraise is an active process with ongoing discussions, meaning its aggregate total could tick upward.
Venture Funding Activity in Q1 2024

Q1 2024: Venture Capital in Cautious Optimism

While Q1 2024 shows a slight QoQ increase, it presented key indicators of a potentially recovering investment climate. The successful tech IPOs, substantial M&A deals, and the resilience of early-stage investments provide a foundation for cautious optimism. However, the road to surpassing previous investment peaks is steep and demands perseverance from both investors and founders alike.

The data from Q1 2024 highlights the challenges of a recovering market that, while cautious, is gradually regaining its momentum.

What Should Fundraising Founders Expect in 2024?

The data from Q1 2024 suggests a cautious but possibly stabilizing investment climate. The rise in global venture funding, particularly in AI and healthcare, highlights sectors that are currently attracting investor interest.

  1. Modest Growth: After a downturn in 2023, venture funding saw a 6% rise in Q1 2024, signaling a cautious yet hopeful market sentiment.
  2. Sector Spotlight: AI and healthcare sectors led the charge in Q1, with AI companies raising $11.4B and healthcare firms securing $15.7B, highlighting key areas of investor interest.
  3. Resilient Stages: While seed funding declined, early-stage startups demonstrated resilience with a 6% year-over-year increase, contrary to a 36% drop in late-stage funding.
  4. IPO Success: Promising IPOs from companies like Astera Labs and Reddit suggest a rebounding market, with significant first-day trading gains
  5. Major Fund Raises: Venture giants Andreessen Horowitz and Y Combinator are preparing for future investments, raising $7B and $2B respectively.

Can founders find more funding opportunities in the coming months?

The overall decrease in late-stage funding and the downturn in seed investments could indicate a tighter environment for new startups and those seeking large-scale expansion funding.

Founders should be prepared for potential challenges in raising capital and may need to focus on demonstrating strong value propositions and innovation to attract investments.

This situation calls for strategic planning, especially in securing early-stage funding which has shown some resilience.

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