Evening Brief – 05.03.24
VC Fundraising Remains Weak
A larger than expected decline in distributions is having a negative impact on the venture capital fundraising market, as limited partners receive less cash for their commitments to reinvest in new vehicles.
The number of venture capital funds in the market decreased by 2.1% in the first quarter of 2024 compared with the fourth quarter of 2023, according to Preqin data, while aggregate capital targeted by firms fell by 2.8% – both from already low levels.
Only 207 funds closed in the first quarter of 2024, the lowest quarterly result since 2015; however, the fund and asset performance data provider added that the statistics were merely “initial figures” and would most likely exceed the nine-year low when more data became available.
Almost 80% of funds closed during the quarter remained on the road for more than 19 months, up from 63% in 2023, according to Preqin. The company noted that while its data on time spent in the market for the first quarter of 2024 was limited, it demonstrated the problems that fundraising teams face.
According to Preqin’s most recent quarterly VC update, investors are still hesitant to allocate to the asset class, with 72% planning to contribute less than $50 million over the next year, up from 49% and 63% in the first quarters of 2022 and 2023, respectively.
The proportion of investors expecting to target North America has decreased to 47% in the first quarter of 2024 from 61% in the first quarter of 2023, while investors planning to target APAC grew from 45% to 47% during the same period.
Exit activity was weak in the first quarter of 2024, the report added, with 235 exits aggregately valued at $14.6 billion. “The fall-off in IPO activity was driven by APAC, with observably fewer IPOs in Greater China, the report said.
“The information technology industry saw the successful IPOs of Reddit and Astera Labs, pointing to promising horizons for the U.S. IPO market, as we see larger firms exit.”
Preqin believes this may help “encourage more to list later in the year” as managers are forced to take a “valuation haircut” as investors seek larger distributions and two years of slower exit activity.