After a painful year, venture capitalists are feeling upbeat about fundraising in 2024. But they are less confident about the exit options available to their portfolio companies next year.
Strong deal volume and valuations led to stratospheric fundraising in recent years. In 2021, 1,397 U.S.-based venture funds raised $157.8 billion and in 2022, 1,057 funds brought in $168.3 billion (more than twice the number of funds and more than four times the capital raised 10 years ago), according to PitchBook. Those totals dramatically slumped this year under the pressure of higher interest rates and a slower economy. Halfway through 2023, just 197 funds raised $27.6 billion. The biggest venture capital funds are having an especially tough time raising capital and investing it.
However, in recent months, economic forecasts have become more positive, venture capital has shown signs of a turnaround and investors in startups are feeling better about fundraising next year.
Kauffman Fellows, an organization with a two-year development program for distinguished venture capitalists, surveyed 250 founding and managing partners of VC firms and 57 percent said market conditions in 2023 resulted in longer fundraising timelines. More than half of them (55 percent) said it was challenging to attract new investors and a third (30 percent) struggled to raise capital from their existing clients. But 59.51 percent also said they were confident they would meet their fundraising goals for 2024.
Almost half of the VCs surveyed by Kauffman Fellows were based in the U.S. and the others were scattered across the globe. The majority are senior and experienced; 61 percent were founding partners at their firm and have closed an average of four funds. The group collectively managed more than $262 billion in assets.
The optimism about fundraising goals could be explained in part by a deal tailwind already in motion. Among VCs surveyed, 70 percent reported making more investments and deploying more capital in 2023 compared to 2022, and 65 percent expect to do more deals in 2024 than they did this year. Only 30 percent anticipate doing the same number of deals in 2024 as they did in 2023.
But while fundraising and capital deployment pick up, venture capitalists are still downbeat about the immediate future of their portfolio companies. A third of VCs felt pessimistic about the exit options for their startups and getting cash back to investors in 2024 — they aren’t dedicating any additional energy to exits next year, according to the survey.
Approximately 50 percent said they are focused on acquisitions in 2024 and only 4 percent are focusing more on initial public offerings for their startups. Beyond those traditional and preferred endgames for their startups, 5 percent of VCs said they are focusing on “alternative exit strategies,” including secondaries, strategic sales, lateral mergers or acquisitions, selling to late-stage investors, and credit to get liquidity.