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5 min read

The state of the VC market and what it means for founders’ raising experiences

In an unusual step for Brighteye, rather than forming and reviewing our own data, we thought to review macro VC data in reports from Silicon Valley Bank, Pitchbook and CB Insights on the state of global VC, to understand the state of the market as a whole and shed some light on what this could mean for founders' raising experiences.


Part 1: Reviewing the headlines in funding, most active European markets, leading sectors, investment trends and H2 outlook


Part 2: What do these macro conditions mean for founders’ raising experiences?

 


Part 1: Reviewing the headlines in funding



Overall funding landscape:


In H1 2024, global venture capital investment reached $52B across 2,971 rounds. This included a notable $20.4B in debt funding, reflecting a rising trend towards alternative financing methods. Equity funding totalled $30B, a slight decrease from the latter half of 2023 but still higher compared to the same period last year. Europe minted eight new unicorns in H1 2024, surpassing the total for the entire previous year.


As highlighted in our short blog on what got funded in Edtech in H1 2024, there were 402 deals done in global Edtech in H1 2024 totalling ~$1.5B in investment. In Europe, 118 deals were done, totalling ~$400M. 


Top countries and cities:


  • The UK led the European VC market with $14.5B in funding. London emerged as the leading city, raising $11.3B, signifying its continued dominance as a global financial hub. The UK, despite leading in deal count, saw a decrease in its share of deal value to 17.3% as larger deals were captured by other regions.

  • Sweden followed relatively closely with $13.3B, propelled by substantial deals such as the $5.2B investment in H2 Green Steel.

  • France secured third place with $6.5B, showcasing resilience and growth, particularly in sectors like AI, fintech, and cleantech.


Leading sectors across all VC activity:


  • Climate Tech: Dominating the VC landscape, climate tech secured $23.3B in funding. This sector's growth is driven by the urgent need to address climate change and the substantial support from debt funding.

  • Fintech: Witnessing a strong Q2, fintech remains a robust sector, attracting significant investments.

  • Energy: Continued to draw considerable attention with $4.7B raised, highlighting the sector's critical role in the global energy transition.


Investment trends:


  • Debt funding: There was a significant rise in venture debt funding, signalling a shift towards more diversified financing strategies as startups and investors seek alternative avenues to fuel growth.

  • Non-traditional investors: Increased participation from corporate venture capital (CVC) and private equity (PE) firms marked a notable trend, with deal values involving these investors reaching 82.5%. Their involvement often brings strategic advantages and higher quality deals.

  • Quality over quantity: Despite a decrease in the number of deals, the focus shifted towards higher quality investments with resilient valuations. This trend reflects a maturing market where investors are more discerning, favouring startups with robust business models and clear growth trajectories.


Market outlook for H2 2024


The outlook for the second half of 2024 remains optimistic with several key expectations:


  • Continued Growth in hot sectors: Investment in AI, climate tech, and healthtech is anticipated to remain strong, driven by regulatory support and ongoing structural demand.

  • Late-Stage Funding: Mature startups are likely to seek further capital, leading to an increase in late-stage funding rounds.

  • IPO activity in US picking up slowly: While global IPO activity is sluggish, IPOs in the US have started to pickup a bit from 2023.




Part 2: What do these macro conditions mean for founders’ raising experiences?



Let’s run through some of the top lines from the reports (referenced at the bottom of the blog), focused on raising conditions for founders:


a. Companies that delayed raising due to uncertain market conditions are nearing the end of their runway. According to SVB, approx. half of US VC-backed companies will be out of cash by Q4 2024. This is a trend likely reflected in other markets, including Europe and Asia.


b. Given many companies’ proximity to the end of their runway, it is perhaps unsurprising to see both 1) the number of projected Series A deals in 2024 exceeding the 2023 total by ~16% and 2) tech valuations falling relative to the 2021 peak and when compared to 2023. This said, the outlook for IPO exits looks promising, with 15 projected US-based IPO exits in 2024 relative to 6 in 2023.



c. While the funding context is tough, it is positive to see that most  companies forced to raise down rounds are still able to raise subsequent rounds and/or exit.  That said, an increasing number of companies that go through a down round neither raise nor exit. Even when recapitalized, fewer of these companies are able to re-establish the growth patterns required to raise subsequent funding and/or exit in the current harsher fundraising environment.



d. One of the reasons for both eroding runways and down rounds is that VC-backed companies are finding revenue growth harder to come by – partially explained (broadly) by reduced disposable income for consumers on the B2C side and increasing competition for reducing budgets on the B2B side.



e. While revenue growth is harder to come by, it appears that startups are making VC rounds last longer than in previous periods, with an upwards trend from ~15-16 months between raises in 2022 to more like 17-19 months in 2023. There does not appear to be a clear trend between the number of VC rounds raised and the time until their next raise.



f. In Europe, the portion of deal value in the UK has fallen significantly while the portion has risen significantly in the Nordics. This said, the overall pie is smaller than this time last year, so is more likely to be skewed by outsized deals. 



g. Looking at which ‘investor’ groups are involved in these deals, the portion of deals in which VCs are involved has fallen to its lowest level since at least Q1 2020, but only slightly below the average, so this should not be interpreted as a long-term, persisting trend. The portion of deals with corporate involvement reached its highest level yet at 11%, up slightly on previous highs of 10%. Most other categories have remained relatively consistent since Q1 2020, when CB Insights’ data began.



h. With regards to the focus of investment activity, unsurprisingly, VC interest in AI has been building for a couple of years. Indeed, the upwards trend in VCs focusing on AI began to ramp up as early as 2019, but naturally the leap between 2022 and 2023 (and probably also the case in 2024), is marked, with the percentage of closed US VC funds with an AI focus rising from 12.7% in 2022 to 26.4% in 2023. This goes some way to explain the substantial capital available for AI companies during 2024 and beyond.



Summary:


Activity thus far in 2024 has underscored the resilience and adaptability of the VC market. With significant investments in climate tech, fintech, and energy, alongside a marked rise in venture debt funding, the market has demonstrated its capacity to evolve in response to global challenges and opportunities. The continued engagement of non-traditional investors and a focus on quality over quantity further highlight the market's maturity. As we look towards the second half of 2024, the VC landscape is poised for sustained activity, driven by innovation, strategic investments, and a robust pipeline of high-potential startups.



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