#18: VC market 2024 halftime: Growth in Silicon Valley & beyond

In a year marked by economic & political uncertainties and shifting market dynamics and after 2 years of declining Venture Capital volumes, first half of 2024 showed increasing investment activities.

Imagine a landscape where AI startups are driving venture capital activities, build-up of mega-rounds and Silicon Valley are jockeying for dominance. Welcome to the thrilling world of 1H2024 venture capital, where in 2Q2024 investment activity raised to USD 65.7 bn. Its first quarter since over 2 years, where we observe a quarter-over-quarter growth as well as a growth versus previous year.

This article dives into the most compelling trends of the quarter and provides my personal outlook for the time ahead.

1?? Funding continues to Surges Amid Mega-Rounds Momentum

In Q2 2024, the venture capital landscape saw strong activity, characterized by robust capital infusion and a stable deal volume. The total capital raised in Q2 2024 increased by 8% to USD 65.7bn versus 1Q of USD 60.9bn. This demonstrates the second increasing equity financing per quarter.

A significant portion of the funding in Q2 2024 was dominated by mega-rounds, which constituted 47% of the total funding. These large funding rounds were critical in propelling startups towards achieving scale and market leadership. The increase in mega-rounds is as well the driver for the increased averaged deal-size, which reaches USD 14.4m up by 17% versus 2023.

However, amidst this funding increase, the overall deal activity witnessed a 7% decline to 6,230 and marking the ninth consecutive quarter of dwindling number of equity deal. However, it is important to note, that usually the number of deals is adjusted in next reporting cycle (e.g. 1Q number was adjusted from 6,238 to 6,734). Therefore, I would expect a more or less stable deal activity number.

2?? AI Startups Lead the Way

AI startups have become a dominant force in the venture capital landscape, capturing nearly one-third of all VC funding this quarter, a record high. These startups drew $18.3 bn in Q2 2024, a 32% increase from the previous quarter. Major deals included substantial investments in Elon Musk’s x.AI and companies like Scale and CoreWeave. Taken the AI-mega-round of Q1 of Anthropic and Moonshot AI into consideration, AI is clearly the driver of the venture capital growth in 1H2024, with 5 companies raising more than 1bn:

• X.Ai (USD 6.0 bn raised)
• Anthropic (USD 2.8bn raised)
• CoreWeave (USD 1.1bn raised)
• Moonshot AI (USD 1.0bn raised)
• Scale AI (USD 1.0bn raised)

3?? US Leads Global Funding Growth with Asia’s activity softening

The US maintained its position as the frontrunner in global funding, reaching almost 60% of all global Venture capital investments into US startups. The core driver is here again AI and the mega-rounds which we witnessed in 2Q2024. Europe is following USD 14bn venture capital funding accounting for 21% of global share with Asia’s VC activity further declining to USD 9.7bn accounting for less than 15% of global activity.

It’s remarkable again, to analyze the Silicon Valley proportion of Venture Capital globally. In 2Q2024, Silicon Valley deals account alone for USD 17.9bn. This translates to 27% of global VC activity in terms of investments, where done in Silicon Valley, more than entire Europa. In terms of US, Silicon Valley accounted for almost 50%.

???? Europe has experienced a 13% growth in Venture Capital reaching USD 14bn funding in 2Q. Its worth looking behind the regional split of this growth as its concentrated mainly on UK (USD 4.9bn up by 58%) and France (USD 2.4bn up by 41%). Both countries account for over 50% of the funding in Europe. Germany reached a stable funding of USD 1.6bn in 2Q versus USD 1.7bn in 1Q.

?? Asia’s activity further softened in 2Q to USD 9.7bn represented another decline of 13%. The decrease is most prominent in China reaching “only” USD 2.2bn in Venture Capital funding in 2Q2024. In 2Q, India has now surpassed China in terms of total funding volume reaching USD 2.7bn, both countries account for over 50% of Asias total VC funding.

4?? Increasing corporate investors in Europe and globally

Back in 2010, corporates contributed a modest 10% to the funding of European startups. Fast forward to 2024, and corporates now account for a quarter of startup funding, according to Dealroom and Shifted . A recent report from Sifted, reveals that 89% of corporate investors plan to maintain or increase their startup investments over the next three years, similar findings are from Global Corporate Venturing . Most corporate VCs prefer to invest around Series A.

The most popular sectors for investment are B2B, AI, and fintech, mostly through primary investments (96%).

Corporate investors have emerged and continue being a pivotal players as well globally, maintaining their strong momentum in the first half of 2024. The share is usually very much impacted to mega-rounds driven by Corporate Investors e.g. in the AI space recently (such as Anthropic (backed by 亚马逊 ), Moonshot AI (led by 阿里巴巴集团 ).

5?? All eyes on exit market

After 2 years of “dryer” exit market, all eyes are on when and how the exit market will rebound. Signals are softly emerging, that the exit market will gain momentum slowly again. In 2Q 82 IPOs have been conducted, 19% more than 1Q (69 exits). With Tempus and Rubrik there were 2 IPOs above USD 5bn round valuation. Public traded market indices are at all-time high with Dow Jones above 40,000 and German Dax at 18,800 despite some market uncertainty (e.g. elections UK, France and the US).

In terms of regional Exit split, Europe and US are currently tied reaching 39% in 2Q, however still on low levels.

6?? My predictions

Being at mid-point of the year, it's time to revisit my 2024 predictions I made last year. Join me as we assess our current standing at halftime:

1) I anticipate the VC deal volume to remain relatively stable in 2024, albeit with some fluctuations: 2024 USD 250bn (+/- 10%)

???? Status: With 126.7bn in 1H2024, we are well on track reaching USD 250bn (+/- 10%)

2) Simultaneously, I foresee the decline in deal counts reaching its bottom at around the current level of 6,000 deals with no quarter in 2024 with less than 6,000 deals

????Status: 2Q2024 deal count declined reaching 6,230. While, I still foresee it has reached its bottom and 2Q2024 data shows it seems to be sticky above 6,000, it will be important to see the activity during “3Q holiday quarter”

3) I won't expect a real comeback of mega-rounds in 2024 yet with annual funding < USD 150bn (lower than 2020, 2021 and 2022 levels)

?????Status: While 1H showed an increase in mega-rounds to USD 58bn mainly driven by AI, I continue expecting annual mega-round funding staying below USD 150bn. Seeing such mega-rounds more broadly (as well outside AI) could bring us potentially near a USD 150bn mark, however I don't see us above this mark for the moment.

4) CVC and Corporate will remain committed and stable investor group with ~17% combined investment share

???? 1H showed strong activity by corporate investors reaching 17-18%. I am convinced, Corporate investors will maintain such high activity levels through-out 2H2024.

Happy investing!

#Corporateventurecapital #venturecapital Startup-Verband BVK Bundesverband Beteiligungskapital Global Corporate Venturing

Disclaimer: The views and opinions expressed in this post and under my Corporate Venture Capital newsletter are solely mine as the author and do not necessarily reflect the official policy, position, or opinion of my employer. Any content provided are my personal views and not investment advice.