Venture Capital Outlook : Is the VC Winter justified? (2024)

FAQs

What is the outlook for VC funds? ›

According to an outlook published by Wellington Management, distributions from VC funds dropped a staggering 84% from 2021 to 2023, further growing dry powder inventory and extending the allocation drought. Competition for fundraising will continue to be a trending theme among emerging companies in 2024.

VC Winter is a period when the money flowing into startups from venture capital investors slows down drastically. It's a tough time period for startups to get through, like a steep frost in the plant world.

While ZipRecruiter is seeing annual salaries as high as $199,000 and as low as $34,000, the majority of Venture Capital salaries currently range between $71,500 (25th percentile) to $119,500 (75th percentile) with top earners (90th percentile) making $165,500 annually across the United States.

The numbers signal investors are concerned by slowing economies and elevated inflation, and the impact those are having on young companies. Global VC investment last year fell to the lowest since 2017, even as new technologies such as generative artificial intelligence attracted funding.

Following a turbulent 2023, Pitchbook makes several positive projections for 2024: Positive economic signals in 2023 indicate a comeback in IPOs in 2024. U.S. VC fundraising is expected to increase, making it stronger than 2023 and comparable with 2020 figures.

There will always be money to be raised. And yet, despite all that cash flowing into VC-backed companies, twenty-five to thirty percent of them will fail. One in five fail by the end of their first year; only thirty percent will survive more than ten years.

The decline in fundraising is also happening at a time when VC dry powder of $302.8 billion is at a record high. Most of this dry powder belongs to funds that were formed in 2021 and 2022.

At the end of 2020, the performance of venture capital funds over a one-year period exceeded the S&P 500 by 33%, one of the widest margins in venture history. Performance had also outpaced the S&P 500 by nearly 14% over the preceding three-year period.

With data suggesting that 65% of VC deals return less than the capital that was invested in them, VC investors are typically comfortable with higher levels of risk compared to investors in other asset classes (even in private equity), and devote their resources and efforts on identifying and helping the high-potential ...

Venture capital firms, old and new, will continue to play a critical role in the innovation ecosystem by funding promising business ideas. These early signs of disruptions suggest challenger VCs will be formidable competitors in the future.

Why is now a good time to invest in venture capital? ›

Bolstered in large part by low interest rates and economic stimulus packages, public and private valuations began to spike in Q2 2020, and private market valuations peaked for all stages between Q3 2021 and Q1 2022.

The failure rate of venture capital-backed companies is high, with estimates ranging from 50% to 90%.

Since 2021, when venture capitals amassed $555 billion, fundraising activities have sharply decreased. Last year, they gathered only a third of that amount, and the downward trend continues, setting venture capitalists on track for their least successful fundraising year since 2015.

Loss of control.

You could think of it as equity financing on steroids. With a large injection of cash and professional – and possibly aggressive – investors, it is likely that your VC partners will want to be involved. The size of their stake could determine how much say they have in shaping your company's direction.

Typically, GPs close several investors at once on a specified closing date. A VC fund can hold one or more closings before it stops accepting pledged capital. After a fund's final close, the GPs do not accept new LPs—also called “subscribers”—to the fund. (While it's possible for funds to reopen, this is rare.)

Advancements in AI and data-driven approaches are enabling VC firms to operate more efficiently, reducing the need for large teams of analysts and associates. This trend is leading to a leaner, more focused workforce, emphasizing quality decision-making and strategic deal-making.

If you're in a big market, developing a disruptive product requires significant capital to build the infrastructure and get off the ground. Taking VC money is not only worthwhile if your market is as big as you think it is, but it might also be your only funding option for the amount of capital you need.

According to Shikhar Ghosh, a senior lecturer at Harvard Business School, up to 75 percent of venture-backed startups don't succeed in that they never return cash to their investors. His research also shows that 30 to 40 percent of those 75 percent liquidate assets, with their investors losing all of their money.

The decline in fundraising is also happening at a time when VC dry powder of $302.8 billion is at a record high. Most of this dry powder belongs to funds that were formed in 2021 and 2022.