Venture capital trend reports for the first quarter of 2024 are coming out.
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It's already mid-April, and the 2024 first quarter performance reports and trends for each company are coming out in the form of reports. It certainly seems that the investment itself has decreased. To be more precise, it's not that there is no money in the VC side, but rather that investment execution is not being done. This could be seen as a signal that they are not finding a suitable place to invest.
Also, as the market freezes and technology-focused investments become stronger, there has been a noticeable increase in the number of exit strategies for existing portfolios. Rather, big tech companies, which can be called large corporations, are showing a tendency to reduce their membership globally and invest in promising startups.
The valuation of a startup refers to the evaluation of the value of a company. In 2023, valuations were adjusted at most investment stages, but from early 2024, there were signs of a rebound in early-stage seed investments. The valuation of late-stage companies fell significantly, and more than 80% of unicorn companies with a corporate value of more than $1 billion were valued at lower valuations than their previous funding rounds. However, AI-related startups continue to maintain high valuations, reflecting investor interest in technology-intensive startups.
Venture Capital's Careful Investment Strategy
Venture capital (VC) refers to investment firms that invest in startups with high growth potential. In 2023, VC investors looked for new investment opportunities by accumulating ‘dry powder’ (money that is not being used for investment). This means that the amount of money available for investment has reached its peak. In the first quarter of 2024, the number of deals did not increase, but the deal size increased, showing a tendency for more money to be invested in promising startups.
Changing startup exit strategies
A startup's exit strategy refers to how to recover investment funds, and representative examples include initial public offerings (IPOs) and mergers and acquisitions (M&As). Startup exit activity in the first quarter of 2024 was somewhat sluggish, but M&As are expected to play a significant role. The IPO market has improved slightly, but it is too early to say that it has fully recovered. Global M&A transaction volume decreased in 2023, but early-stage investment was active in the US, and some early-stage companies are maintaining high valuations.
Talent and Venture Capital Staffing Trends
Hiring in the tech and startup sectors is being done cautiously, and corporate restructuring continues. In the venture capital industry, the difficulty of attracting investment, slowing compensation growth, and increasing competition for deals are putting pressure on the workforce. This is particularly true for junior roles with little experience, and many experienced people are moving to other companies or returning to the workforce.
In 2024, there will be a noticeable trend of people with practical experience and expertise moving to startups or VCs. They will enhance their investment judgment based on their field experience and provide practical advice and guidance to startups, contributing to maximizing investment performance. This is playing an important role in ensuring the growth and sustainability of new companies in the market.
LP and VC Business Strategy
LPs (Limited Partners) are investors who provide funds to VC funds, including pension funds, insurance companies, endowments, and family offices. They are greatly affected by fund performance and value the stability and profitability of their investments. Recently, among LPs, alternative asset investments are increasing, especially among family offices.
Hybrid investors are investors who invest in both unlisted companies (private markets) and listed companies (public markets), while crossover investors are investors who primarily invest in listed companies but also participate in unlisted investment opportunities. They can diversify volatility risk by flexibly allocating funds according to market conditions.
CVC (Corporate Venture Capital) is a method in which large corporations invest in external startups to discover new businesses or introduce new technologies. In the United States, CVC's participation in startup deals has increased, but in the global market as a whole, it has decreased slightly.
Most VCs expect institutional investors to adjust their VC investment allocations in 2024. VCs themselves are also stressed, with dividend payouts declining and new fundraising sluggish.
CVC can support the rapid growth of startups by utilizing the assets of large corporations such as infrastructure, networks, and expertise. Also, since they make strategic investments from a long-term perspective, they are not obsessed with short-term profitability. CVC can provide startups with market insight and industry networks to help them adapt to the market and grow, providing greater added value to startups than traditional VCs and leading to good investment performance.
In conclusion
VC investment has become more segmented and complex due to the participation of various investment entities in the VC market. This has forced VCs to take a more meticulous approach to investment decisions, which in turn has contributed to maintaining the soundness of the VC market and promoting innovation.
The startup and venture investment ecosystem is struggling, but at the same time, new changes, opportunities, and innovations are sprouting. I look forward to the industry’s future development. If you have any further questions, please let me know. I will answer them sincerely.
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