The global venture capital market is experiencing short-term weakness compared to public markets, with the US Federal Reserve’s “dovish” scenario in terms of interest rates leading to improved prospects for private equity, said analysts from the data and research outfit Preqin in the firm’s Q4 2023 VC and PE , published on 31 January 2024.
2023 ended with a broader decline in the VC landscape. Marked by fewer and smaller deals, the VC market saw an overall decline in total deal value. In 2024, the number of VC funds raising capital continued to increase, although fundraising remains challenging, which could potentially impact VC activity throughout the year. Preqin analysis, as of January 2024, found that the number of VC funds in the market remained at a record high, with 6,487 funds targeting $437bn in capital.
VC exits and IPO activity
According to Preqin’s report, VC exits remined muted in 2023. There were 160 successful exits for a total of $160bn in Q4 2023.
The report also noted that the UK and EU regulators’ careful and detailed 15-month long review of the Figma and Adobe merger finally led to the cancellation of the deal in December 2023. For 2024, Preqin expects European regulators to continue scrutinising larger mergers that could affect competition.
Initial public offering activity was also quiet, with the number of deals and aggregate exist value continuing to decline at the end of 2023. The number of deals in Q4 dropped to 30 deals, and aggregate exist value declined by 74% to $3.1bn.
However, Preqin’s November 2023 published in December, revealed that 41% of VC fund managers expect an increase in IPO activity in 2024.
Sentiment in private equity market improves
Preqin’s November 2023 survey also indicated that sentiment in the PE market has improved. 2023 year-end data from Preqin showed a continued recovery for global PE market, as interest rate risk fell.
Preqin analysis, as of January 2024, found that the number of PE funds in the market came to 6,487 funds targeting $1,161bn in capital.
Global results were positively impacted by the continued pickup of deal flow in Europe, Asia-Pacific (APAC), and North America in Q4, per Preqin analysis. Europe-focused PE funds raised 18.7% of the total funds raised globally.
However, Preqin’s report noted increased concerns from PE investors due to geopolitical tensions. PE investors plan smaller fund commitments, said the research firm, whose November 2023 survey results indicated that 66% of investors plan to deploy less than $50m over the next 12 months.