Foley & Lardner New Newsletter 2024

Friends,

In last month’s newsletter, we reflected on the venture capital debt market. Following the bank crisis spurred by the Silicon Valley Bank, Signature Bank, and First Republic Bank failures, spring has ushered in a season of renewed growth across the venture capital debt market. We reviewed PitchBook's notes on the current market's gradual recovery and provided a statistical summary of the recovery.

With the first quarter of 2024 behind us, analysts are now taking a look at the dealmaking landscape so far this year. CB Insights has released their State of Venture Q1’24 report, showing a “mixed bag” for VC dealmaking to start the year.

Their data shows dealmaking dropping to a seven-year low in Q1. It was also the eighth straight quarter we saw a drop in equity deal volume. However, they note that several blockbuster deals contributed to a modest rebound in funding (11% QoQ), driven by generative AI and the creator economy. Also, Pitchbook has released its Q1 Venture Monitor Report, and below are some highlights from the report.

• The first quarter of 2024 did not start on a high note for the US venture capital community. There is usually a bit of seasonality life that accompanies Q1, but with $36.6 billion invested across 3,925 deals, Q1 deal activity remained relatively on pace with the past year.
• The VC market slowdown has not shifted significantly over the past few quarters. The beginning of 2024 was met with some residual optimism, but that did not translate into meaningful growth in activity. Market headwinds continue to enforce their will on financial markets.
• In Q1, the pace of dealmaking continued to slow. Deal value dipped QoQ but was roughly the same as Q3 2023.
• At the late and venture-growth stages, where a significant portion of large deals historically take place, there has been an uptick in capital supply shortage.
• In Q1, there has been a significant drop in deal count and value at the pre-seed and seed stages. The sharp decline contrasts with trends from recent quarters, wherein pre-seed and seed activity held up relatively robustly.
• Earlier-stage companies that have been stuck at a standstill between pre-seed and seed, or between seed and Series A, may not be able to achieve the next milestone.
• On a positive note, the median pre-money valuation for venture-backed startups surfaced an upward trajectory from the 2023 annual level across the venture lifecycle, despite the overarching slowdown in deal momentum.
• Dry powder remains at an all-time high, totaling $311.6 billion, and capital continues to be deployed at a slower pace.

As always, do not hesitate to reach out if we can help you brainstorm a legal or business challenge you are facing, or if we can connect you to a potential investor, professional, or entrepreneur.

Authors

Natasha Allen , Lisa Conmy , David Kantaros , Jeff Bowman ,

Von Bryant , Steven Cade , Eric Chow , Brandee Diamond , Maureen Easton , Louis Lehot, Julie-Anne Lutfi , Nicholas O'Keefe , Taylor Pancake , Kevin Shuler , Glenn Singleton , Lyman Thai , André Thiollier , Melissa Conroy , Alan Pate , Alidad Vakili