Introduction
From the rise in women founders to the increase in socially responsible investments, the outlook for venture capital in 2024 is optimistic. We can expect the influx of tech mergers and acquisitions and the buzz around artificial intelligence to play a large part in the growth of the VC industry.
While the venture capital landscape has been rocky for the past few years, many investors predict a rebound in VC fundraising in 2024. Some of the industries trending include healthcare, information technology, and business and financial services. Additional sectors seeing significant VC investment are technology, biotech, renewable energy, fintech, real estate, and e-commerce.
In this article, we’ll share a history of the venture capital landscape over the past few years, ten trends in VC investing, and the industries VCs are funding in 2024.
The VC landscape over the past few years
Venture capital funding has been on somewhat of a roller coaster over the last several years. But, overall, the VC industry has seen substantial growth in funding, with the most significant amounts allocated towards technology, healthcare, and innovation.
The industry has also seen a rise in mega-rounds (investments exceeding $100 million and up to the billions) and unicorn startups.
Post-pandemic, digital transformation trends have been on the rise—increasing investments in remote work technologies and telehealth.
“I believe that because of the accelerated adoption of telehealth and digital health solutions as a result of the pandemic, we will continue to see massive innovation and disruption in the personalized health and wellness space.”
– Trey Bowles, Managing Director Techstars Anywhere
Additionally, we’ve seen an increased focus on diversity and inclusion in the workplace and the VC ecosystem. Sustainable investing has also increased, along with the number of sustainable startups.
The following is a brief recap of the VC landscape from 2021-2023:
2021
Post-pandemic, there was an influx in VC activity in the tech and healthcare sectors. 2021 was a breakout year for VCs as $128.3B was raised — a whopping 75% increase over the $73.6B in 2020. It was also reported that 27% more deals were closed than in the previous year.
2022
In 2022, the pace of global VC funding slowed down, as there were many public exits of VC-backed companies throughout the year. There were, however, some of the highest amounts of capital raised by venture funds. While most sectors saw a decline from 2021, energy remained strong.
2023
2023 was the lowest year for global VC fundraising since 2015, as venture capitalists avoided funding businesses that did not show signs of growth and profitability. There was a visible decline in the market at all phases.
Ten Trends in VC Investing
Fast forward to the present day. The following are ten key venture capital trends that startup founders should be mindful of in 2024:
1. Tech mergers
It has been predicted that 2024 will be a standout year for tech mergers and acquisitions. Both public and private tech companies will be poised to access large amounts of capital—helping them acquire new customers, and build new partnerships. “For startups struggling to fundraise due to high-interest rates and VC valuation caution, selling will feel like the best — and most face-saving — option,” said Jeremiah Gordon, the General Counsel of CapitalG, in a recent Forbes interview. “Meanwhile, public and large private tech companies will be eager to leverage their strong balance sheets and access vast quantities of capital to acquire customers inorganically, boost adjacent product offerings, and add key distribution channels and partnerships.”
Photo by Cytonn Photography on Unsplash
2. Cross-border payments
Over the last several years, payments have been an area of growth, and cash usage has declined. Thanks to fintechs, there are new ways to move money and make swift payments. New startups are using blockchain, digital wallets, and other technologies for cross-border payment, and the integration of AI may help reduce fraud.
Fintech startups that are focused on cross-border payments are likely to attract VC investments due to the growth of digital wallets and real-time payment systems. VCs may also target e-commerce startups that offer specialized payment solutions.
3. Bridge rounds for later-stage startups
Startups that have advanced to the late stage and cut their expenses may attract new capital through interim bridge rounds—investment rounds that help startups “bridge” the gaps of time between larger funding rounds. This trend is expected to continue in 2024, as it showcases the financial resilience of investors and their potential for future growth.
We may also see more strategic bridge rounds aimed at product launches and market expansions, for example. As market trends and economic conditions greatly influence bridge rounds, investors may adapt their strategies accordingly.
4. Investment amounts
Venture investments are expected to level off in 2024, while financing is set to increase due to the onset of AI. Additional predictions include a decrease in insider rounds from about 38% to 25%.
Overall, the amount of VC funding globally is said to be on an upward course, and late-stage startups are expected to attract significant investments. We may see an increase in mega rounds, thanks to growing sectors such as technology, healthcare, and fintech.
Economic conditions and tax incentives will, of course, also impact VC investment amounts.
5. Private equity
As it relates to private investment, pricing is expected to improve slightly, with average discounts of around 10%. It’s anticipated that we’ll see an increase in market activity and growth in the private equity sector in 2024.
There has been a growing focus on buyouts and minority investments, along with a focus on technology and innovation. Private equity firms have shown great interest in tech-driven sectors, and that trend is expected to continue.
6. Socially responsible ventures
With sustainability and clean energy at the forefront, the industry can expect to see more investments in eco-friendly ventures. Many sustainable startups are poised to hit the scene in 2024.
A major criteria for investors are companies that place importance on environmental, social, and governance (ESG). VCs that are socially responsible may also prioritize startups with diverse leadership teams fostering an inclusive workplace.
“As one of the most active early-stage investors in Europe, we have an extensive read on which sectors are flying, and which ones are flattening out. As we’re moving into 2024, the biggest trend we are seeing is an increasing focus on GreenTech - demand for technologies that are mitigating the outcomes of climate change, with many impressive startups bringing a purpose-driven vision to life in this critical space. We are also seeing ambitious plans taking shape in MedTech, with lots of it coming from the innovation hubs around the great research that’s being done at universities.
– Niklas Föltz, Marketing & Communications Manager SFC Capital
7. Unicorns
Unicorns—private-held startups with a value of over $1B—are expected to face pressure to raise capital in 2024. PitchBook has forecasted that about 30-40 unicorns will shut down, and a 10-15% decrease in active unicorns is expected in the US.
Traditionally, technology companies have dominated the unicorn landscape, but we may see more diversity this year among areas such as healthcare, fintech, and clean energy.
Unicorns are also expanding globally, and investors are looking at startups with plans for international expansion.
8. VC secondary increases
VC secondary markets are when existing investment stakes in VC funds (usually among limited partner) are sold to provide liquidity to investors who want an early exit. It’s been predicted that VC secondaries will increase with more liquidity opportunities, and price expectations will be reset for transactions. Private equity secondaries are also expected to rise to a record high in 2024.
The rise in direct listings and Special Purpose Acquisition Companies (SPACs) may also affect the VC secondary market. We may also see increased participation from institutional investors such as pension funds and family offices.
9. Women founders
The VC industry saw a surge of women investors in 2023, and it is predicted that 2024 will see an even higher number of new women-led VC funds, from more diverse backgrounds. That being said, the gender funding gap has been illuminated, and efforts are being made to increase funding for women-led startups.
We can also expect to see an increase in the number of women-led unicorns, as networks that support women founders continue to grow. Investors who prioritize diversity and inclusion will find women founders particularly attractive.
Additionally, the continued growth of STEM (Science, Technology, Engineering, and Mathematics) education initiatives for girls may help contribute to the growth of women entrepreneurs.
10. Government regulations on AI startups
As we move into 2024, the impact of government regulations on AI startups cannot be ignored. Stricter regulations governing data privacy, algorithmic transparency, and ethical considerations could potentially impact investment in the sector, leading to a more cautious approach by investors.
The Biden Administration Executive Order (EO) on AI aims to ensure the safety and security of AI through the development of standardized metrics. Their goal is to ensure that American workers are not affected negatively by these developments. The requirements will include:
- Affirmative reporting for AI companies that are developing foundation models
- Creation of new standards for the labeling of AI-generated content to ensure safety and security
- Development of a cybersecurity program to create AI tools that will find and fix glitches or flaws in software
A summary overview of the 2023 VC funding landscape
Trey Bowles of Techstars Anywhere also shared with us this general overview of 2024. "As we enter 2024, I believe some elements of VC fundraising will continue, and others will hopefully fall by the wayside. I think we will continue to see a slower funding environment for founders pushing more early-stage (pre-seed and seed) companies needing to be creative in finding initial funding through angels, angel networks, non-dilutive funding, and FFF (friends, families, or fools). However, I also believe that because of the current state of the market we are seeing much more affordable and value-based deals that will create a higher return for opportunistic investors in this space.”
Niklas Föltz shared that “The UK startup and scale-up ecosystem feels buoyant, even if fundraising is challenging and valuations are a little softer than from 2020-2022. We’re also seeing a big increase in secondary market activity, with early-stage investors (and even founders) benefitting from the opportunity to crystallize some value from positions that are 3+ years old.”
The industries VCs are funding
As we continue moving into 2024, some of the trending industries and hot sectors that venture capitalists are investing in include defense technology, AI and blockchain, fintech, space technology, sustainable solutions, and biotech.
Defense technology
As cyber threats are becoming more complex, startups are developing defense technologies like cybersecurity and advanced weaponry to attract VC investment. The demand in defense will give startups a competitive advantage, and investors will seek startups that have built partnerships with defense contractors and government agencies.
We can also expect to see investments in emerging technologies such as AI and machine learning, as they have the potential to boost the capabilities of defense systems and refine military operations.
According to PitchBook, defense tech VC activity topped out at $34.3 billion in 2023 and is expected to grow at a rate of about 16% in 2024.
AI and blockchain
Emerging technologies such as AI and blockchain have a bright future. Startups with AI technology in place can solve real problems and have proven revenue streams. VCs seek companies that implement AI well, and investors target startups with a scalable business model.
“I believe AI will continue to be a buzzword, but we will see more specification in the areas that AI products will be developed and it will be tied to solutions solving real problems,” said Bowles. Niklas Föltz shared with us that they are seeing many AI-enabled businesses and startups working on LLMs.
Since the launch of ChatGPT in the fall of 2022, the growth of AI startups has been explosive. The AI market size was valued at $136B in 2022, and the compound annual growth rate is predicted to be just over 37% through 2030. Expect investors to start requiring clearer roads to profitability and looking for startups with competitive advantages. Sarah Johnson, a managing partner at ABC Capital, shares that "investors will be looking for startups that not only have ambitious AI technology, but also demonstrate real-world applications and revenue potential.”
Fintech
Fintech technology and cloud services are expected to continue expanding in 2024. VCs are seeking to fund ventures that push the status quo in how we digitally interact with financial services.
The growth of digital payments and mobile wallets is slated to continue, as these innovative and secure payment solutions are attractive to investors. Decentralized Finance (DeFi)—blockchain and cryptocurrency-powered platforms—is also quickly evolving as these are areas of interest.
Photo by André François McKenzie on Unsplash
Space technology
Space technology is at the investment forefront thanks to the recent advancements by companies such as SpaceX. VCs are looking to fund ventures that make space more innovative.
With this growth, many private companies are looking at space exploration and commercial space travel as a significant investment. Additionally, satellite constellations providing high-speed internet access worldwide will remain a focus for investors.
In 2023, approximately $4.8 billion was invested in the space tech industry. According to a Techcrunch prediction, we can expect to see record numbers of space tech companies being funded in 2024, along with an increase in both early and growth-stage investment activity.
Sustainable solutions
As a result of the climate crisis, sustainable solutions are expected to gain momentum this year. According to a survey from deVere Group, more than half of investors plan to increase their ESG-orientated investments in 2024.
Investments in renewable energy such as solar, wind, and hydroelectric power are expected to remain steadfast, thanks to the continuous advancements in new technologies and energy storage solutions. Clean transportation, such as electric vehicles (EVs) is also expected to attract investments.
Biotech
From 2020 to 2023, the seed funding for biotech startups increased by 190%. In 2023, biotech startups brought in about 16% of all capital raised. Based on this trajectory, we can expect to see continued growth in biotech in 2024, thanks to advancements in gene therapy, digital health, and regenerative medicine. Post-COVID, investing in companies that work on vaccine development will remain a focus.
Founders and locations
Types of founders
2024 is expected to launch more founders, such as women-led VCs and partners from more diverse backgrounds. It has also been predicted that the VC industry will see a new category of owners, including small independently-owned businesses.
Other types of VC founders that are predicted to hit the scene this year include a wide variety of innovators and entrepreneurs. With the increased focus on the environment, we can anticipate a growth in sustainable startups. We can also expect to see a surge of HealthTech and Fintech founders, along with AI and machine learning experts.
Geographical regions
Historically, the San Francisco Bay Area has led the way in capital investment, closely followed by New York City and Boston. In 2023, Washington, DC moved ahead of Los Angeles thanks to a $260 million healthcare deal.
However, venture investment is spreading beyond well-known hubs like Silicon Valley, the San Francisco Bay Area, and New York City. Emerging cities include Austin, Miami, and Seattle. Austin, in particular, continues to perform at a rapid pace thanks to its entrepreneurial ecosystem driven by FinTech activity.
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From a worldwide perspective, China has emerged as a key player in venture capital, with hubs in Beijing and Shanghai. Other regions showing increased VC activity include London, the United Kingdom, Berlin, Germany, Tel Aviv, Israel, Bangalore, India, Tokyo, Japan, and the Nordic Region, specifically Sweden and Finland.
Conclusion
In today’s ecosystem, venture capital is a catalyst for technological advancement. When VCs provide funding for startups, it can yield tremendous growth, particularly in the tech sector.
While there are always unknown variables, 2024 is poised to be a promising year for VC. We can expect to see investors becoming more selective, and the biggest flex is undeniable with AI startups.
Bowles believes that entrepreneurs committed to building companies on the foundation of fundamentals like sales, revenue, and profitability, will continue to have success in fundraising. “I think we will look back on 2023-2025 as one of the hottest times to invest in startups in the last two decades,” said Bowles. “I am bullish on where we will sit two years from now, and I don't think there is a better time to be in venture than right now.”
