Venture capital invested into startups in 2024 is expected to rebound thanks to positive economic signals but only to a level similar to 2020, according to the 2024 U.S. Venture Capital Outlook published early Tuesday by PitchBook Data Inc.

The report details that though 2023 held a few surprises, notable among them the collapse of Silicon Valley Bank in March, there was little disruption in the market overall. A few high-profile initial public offerings, including Arm Holdings PLC and Instacart, generated little momentum for the market, further securing 2023 as a poor one for exits. Then, thrown into the mix was the clown show at OpenAI as Chief Executive Sam Altman was fired and rehired over the space of a few days.

With the occasionally strange 2023 nearly passed, PitchBook believes a market reset is in progress. Valuations have come down but remain high relative to historical trends. Deal counts are down significantly from 2021 but have largely been above quarterly totals before that year.

For 2024, the report notes that there are no indicators of a significant rebound in the near term given the same factors that led to a slowdown in VC remaining in place: high interest rates, inflation and geopolitical tensions. However, PitchBook is more optimistic for the long term.

Artificial intelligence, the report says, adds a “bit of fuel to the venture fire, leading the push for renewed optimism.” Public markets have also stabilized and a reappearance of IPOs could start to unlock the returns that limited partnerships have been hearing about but have been unable to realize.

Dry powder,  the amount of committed but unspent capital a firm has available to invest, remains high. Although PitchBook believes that the overall number of VC firms will wane over the next few years, more than 4,000 funds have been raised since the beginning of 2020. “Capital is out there and strong companies can use the slow market to separate from the competition,” the report notes.

Fundraising in the U.S. is expected to top 2023 but only come to about that of 2020. The number of insider-led rounds as a proportion of all U.S. VC deals is expected to be on par with or exceed the 2023 level, while the number of U.S. active unicorns — startups with a valuation of $1 billion or more — is expected to decline in 2024 because of increased market volatility, tighter investment and financing conditions, and a significant discrepancy between public and private valuations.

PitchBook predicts that due to interest rates staying flat or declining in 2024, U.S. VC deal activity will increase, coupled with an increase in nontraditional VC investor participation. “Stable or declining interest rates alter the risk-return profile of assets, as investors search for better returns as the opportunity cost of foregoing traditional fixed-income investments decreases,” the report explains. “Thus, a departure from the current interest rate environment could potentially drive nontraditional investors to seek higher returns in alternative assets, such as venture capital.”

Other predictions in the report include accelerators taking advantage of increased deal-making momentum in 2024. “Programs and entities that nurture the earliest stage of startup formation, most prominently accelerators and inception-stage-focused investors, are set to play an increasingly important role,” the report says.

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