The stock market is coming back and interest rates are poised to come down, yet the picture feels less rosy in tech. More so than in past years, the tech ecosystem feels at odds with the macro environment: the tech IPO window remains largely shut, investors face liquidity crunches and many startups are struggling to raise capital. The question on everyone’s mind is what is in store for 2024?
I spoke with leading venture capitalists (VCs), investors in VC firms (called Limited Partners, or LPs) and other experts for their perspectives. They gave me their thoughts on what the fundraising environment will be in the new year, what LPs will be looking for in new commitments, what the VC secondary markets will look like and whether AI is an opportunity or overhyped.
The most striking takeaway was actually the conflicting opinions and lack of consensus about what will happen in 2024. Will it be a good year for VC? Is the tech rebound just lagging the public markets, or are there more stormy seas ahead?
1. We will see the great VC resignation
“We are starting to see the great [VC]
— Jenny Fielding, Co-Founder and General Partner, Everywhere Ventures
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2. Record amounts of dry powder will put downward pressure on returns
“The rise in capital raised, and therefore left to deploy, was driven by the bull-run of VC returns between 2010 and 2015. Since 2015, venture capital dry powder has increased by 385%. In the period between 2010 and 2015, 1st quartile managers achieved >3.0x TVPI across in each vintage. In 2024, record amounts of dry powder, or committed but unallocated capital that firms have on hand, will put downward pressure on returns as investors chase deals in a bid to deploy capital.”
— Sunaina Sinha Haldea, Global Head, Private Capital Advisory, Raymond James
3. The hype around LLMs won’t last
“Paul Amara famously pinned Amara's law, that we ‘overestimate the impact of new technology in the short term and underestimate it in the long term.’
The same is true for large language models (LLMs). Despite the incredible advancement in LLMs, it's unclear if there's enough market pull from enterprise organizations to justify all the dollars going into the sector. Expect many of these seed-stage startups to either fold or pivot into solving a more meaningful, less hype-y business problem.”
— Ramy Adeeb, General Partner, 1984 Ventures
4. 2024 will prove to be a year of critical importance for managing bias
“With forty countries going through election cycles, we anticipate increased uncertainty in the markets and geo-political friction, which will further exacerbate bias in the field. Additionally, the proliferation of AI will require significant developments to address bias in machine learning to ensure that the industries of impact sectors are accelerating both with speed of delivery, as well as the equity for diverse populations. Fund managers will need to be especially resilient and hold true to their strategies to address bias while ensuring optimal impact and returns.”
— Daryn Dodson, Managing Partner, Illumen Capital
5. We will see a drop in “bridge” rounds in 2024, meaning more cash for new startups
“In 2024, the insider round (also known as a bridge or extension) will regress from 38% of all rounds back down to 25% or so. 2023 was full of extensions as investors gave additional cash to their current portfolio companies in the hopes of helping them get by until the next primary round. I expect VCs will be less generous to current portfolio companies next year—but hopefully this means more cash devoted to new companies.”
— Peter Walker, Head of Insights, Carta
6. 2024 will be a banner year for tech M&A
“2024 will be a banner year for tech mergers and acquisitions. For startups struggling to fundraise due to high-interest rates and VC valuation caution, selling will feel like the best — and most face-saving — option.
Meanwhile, public and large private tech companies will be eager to leverage their strong balance sheets and access to vast quantities of capital to acquire customers inorganically, boost adjacent product offerings and add key distribution channels and partnerships.”
— Jeremiah Gordon, General Counsel, CapitalG
7. VC secondaries will increase; so will a re-setting of price expectations
“Driven by a need for liquidity, we will see an increase in VC secondaries. We will also see the corresponding re-setting of price expectations needed for transactions to clear the market.”
— Sunaina Sinha Haldea, Global Head, Private Capital Advisory, Raymond James
8. The investors entrenched in the ecosystem will have access to the best secondary opportunities
“For 2024, I’m a firm believer that despite there likely being an increase in VC secondary opportunities, it will really be people entrenched in the ecosystem who will be able to access the best deals by the disparity of information they possess.
Having transparency on how assets are actually performing, through strong relationships with both entrepreneurs and GPs, will allow more accurate pricing and proprietary sourcing of the best deals.”
— Chloe Dagnell, Principal, Isomer Capital
9. We will see a rebound in VC fundraising
“In the coming year, we will see a rebound in VC fundraising from the depths of 2023 – though don’t expect fundraising to hit the highs of 2020 and 2021, as managers will continue to face an uphill battle securing commitments. 2023 is on pace for a ~50% drop in the number of funds raised as well as a ~60% drop in total capital raised from 2022.”
— Sunaina Sinha Haldea, Global Head, Private Capital Advisory, Raymond James
10. Next-gen family office leadership will champion more VC commitments
“The volume of family offices has grown >10x since 2008 and has served as one of few available capital sources for founders and fund managers in the current market slowdown.
Against this backdrop, we’re in the middle of the greatest intergenerational wealth transfer in history. I believe this emerging wave of next-gen family office leadership (especially millennials whose lives have been shaped by tech innovation) will champion greater venture capital activity in 2024 and beyond. Uniquely, many of us seek to produce top-quartile returns and align our investment portfolios with our values.
Broadly speaking, I anticipate a healthier venture ecosystem for all, once the IPO market fully reopens.”
— Esther Tricoche, Managing Director, MALIAM
11. New managers starting VC firms will increasingly be spin-outs from big firms
“In the next 12 months, I believe we’ll see a steady pace of new fund managers starting firms, and an increasing number of these managers will originate from existing brands rather than primarily operating backgrounds. I expect they’ll have a hunger and hustle that will benefit founders after years of tourist investors and create a competitive pressure on other established investors to up their game.”
— Lisa Cawley, Managing Director, Screendoor
12. 2024 will be the year of the hyper-specialist VC
“2024 will be the year of the hyper-specialist VC. Where conviction is hard to come by, and FOMO isn't driving investment decisions, specialists who know how to pick in this market will shine. With a significant reduction in capital allocated to VC in 2023, the supply and demand laws are tipping in favor of GPs with capital. Specialists who select well and pay close attention to entry prices have the power to unlock outsized returns, whilst the number of GPs investing could half.”
— James Heath, Investment Principal, dara5
13. VC firms that are heavily entrenched, either through legacy or specialism, will be most appealing to LPs
“The same goes for how LPs are thinking about making new commitments; those that are heavily entrenched, be it through legacy or specialism, will be most appealing as potential primary investment opportunities for LPs, as safer pairs of hands in a still turbulent market.
As such, emerging managers must field teams that can demonstrate some experience and passion about the strategy, and already have (or at least be building) competitive advantages to source, win and develop great investments over a cycle. Investors have many choices for where and when to deploy their capital, so emerging manager propositions must be even more compelling than existing options.”
— Chloe Dagnell, Principal, Isomer Capital
14. The best-performing VC firms will generate the lion’s share of returns
“Unless you can get access to the top-performing managers, LPs could be best served by avoiding venture capital. The best-performing VC firms will continue generating the lion’s share of returns for the asset class, highlighting the importance, and difficulty, of manager selection.
Between 2010 and 2015, the average difference between top quartile and median funds was 1.23x, a much bigger difference than between median and 3rd quartile funds, 0.68x.”
— Sunaina Sinha Haldea, Global Head, Private Capital Advisory, Raymond James
