Venture capital deal activity is slowing down
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Venture capital's lack of exits is restricting new deal activity, according to the latest PitchBook-NVCA Venture Monitor.
The big picture: Distributions to limited partners in VC funds haven't been this low since the Great Financial Crisis, sparking what PitchBook refers to as a "stalemate."
- LPs are hesitant (or unable) to back new funds until the liquidity spigot loosens, thus causing venture capitalists to slow their investment pace or stop investing altogether.
By the numbers: U.S. venture capitalists invested $37.5 billion via 2,794 deals during Q3 2024.
- The deal number is 34% lower than in the prior quarter, and 17% below the year earlier period. And it looks even worse beneath the hood, given the plethora of insider and bridge rounds.
- The dollar number is down 32% from Q2, despite a handful of massive AI rounds, and 11.7% lower than the average dollar volume over the prior eight quarters (i.e., the post-pandemic era).
- The number of active investors has fallen by more than 25% year-over-year, and 2024 is set to be the second straight year in which VC fundraising is less than half of 2021 or 2022.
What they're saying: National Venture Capital Association president Bobby Franklin pointed blame at government:
"As evidenced by this quarter's numbers, the FTC's fixation on M&A is continuing to disrupt the entrepreneurial ecosystem. The result, when added to current market conditions, is leaving startups with fewer exit options and making it harder for VCs to invest in innovative new ideas. As campaign season draws to a close in the U.S., the industry is eager to work with the next presidential administration and new Congress to right the ship and reignite American ingenuity."
Reality check: Yes, it's true that President Biden's heightened antitrust scrutiny has scared off some big sales to Big Tech and other strategics.
- But it's also true that VCs and founders have kept chasing the ghost of pandemic-era valuation excess, thus stymieing exit efforts.
- Moreover, Biden had presided over very strong public stock markets that have proven welcoming to IPOs — which is where VCs historically have made their strongest returns — but too many VCs have become so "founder-friendly" as to become lousy fiduciaries.
The bottom line: The VC market's cowardly chickens are coming home to roost.
