Foley & Lardner May 2024 Newsletter

Friends,

In last month’s newsletter, we looked at the dealmaking landscape so far this year by reviewing the CB Insights State of Venture Q1’24 report, which showed a “mixed bag” for VC dealmaking to start the year. We also reviewed Pitchbook’s Q1 Venture Monitor Report.

This month we will review some sectors where investment is trending and explore the prognosis for a venture fundraising recovery and what it could mean for the greater innovation ecosystem.

In recent months, we have seen a flurry of negative news about startup investments. However, a recent report from The Information highlights two sectors where investment is actually increasing: artificial intelligence and creator startups.

The first sector is generative artificial intelligence, which continues to inspire investors with the fear of missing out, although this is moderating. According to The Information's data, there has been an impressive 11% increase in investments in this sector during the first quarter.

Business Insider highlights that despite the overall slowdown in investments across various sectors, startups within the creator economy continue to attract significant funding. Notable examples include several startups that successfully raised seven-figure seed rounds last year, as well as multiple later-stage funding rounds for creator-focused startups.

The positive trend for creator startups continues. In the first quarter of 2024, the sector experienced positive year-over-year growth compared to the first quarter of 2023. Despite the many challenges, creator startups present a compelling investment opportunity for those seeking new sources of disruption.

Outside of the creator space, there is much anticipation surrounding the recovery of venture fundraising. From 2021 to 2022, venture capital firms saw tremendous growth, with their assets under management (AUM) increasing by 58% to reach $3.8 trillion. Fundraising was a primary factor in this growth. However, following these record-breaking years, venture fundraising has significantly declined. According to PitchBook analysts, a full recovery to those exceptional highs is not anticipated until after 2028.

The fundraising forecast for this year is significantly lower, at less than $200 billion, marking a 48% decline from 2021. PitchBook projects a modest annual growth rate of 2.9% through 2028, which is notably "half the rate of other private capital strategies, including private equity, private debt, and real assets funds." This slower growth could significantly impact aggregate AUM. Moreover, if valuations remain depressed, VC AUM may remain stagnant until 2028 or beyond.

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

Welcome Brian Wheeler

To further enhance our capabilities in the Technology, Health Care, and Life Sciences sectors, we are pleased to welcome Brian Wheeler to the firm, who joins our San Francisco office today as a partner in the Transactions Practice Group. Brian brings extensive experience spanning top levels of both the global law firm and global investment fund environments.

Throughout his career, Brian has led numerous large-scale M&A transactions for both public and private buyers and sellers, private equity buyouts, and venture and growth equity investments. He has a particular focus on cross-border deals and those involving technology and life sciences companies. He has also advised companies on FCPA compliance, internal investigations, litigation, investor relations, employment, and firm management matters.

Importantly, many of you know, trust, and like Brian as much as we do. We look forward to bringing Brian's knowledge and experience to bear for the benefit of all of our clients in the years to come.

Your Foley & Lardner Team,

Louis Lehot , Natasha Allen , David Kantaros , Lisa Conmy , Jeff Bowman , Von Bryant , Steven Cade , Eric Chow , Brandee Diamond , Maureen Easton , Julie-Anne Lutfi , Nicholas O'Keefe , Taylor Pancake , Kevin Shuler , Glenn Singleton , Lyman Thai , André Thiollier , Brian Wheeler , Melissa Conroy , Alan Pate , Alidad Vakili