AI dominates global venture funding as other sectors faced challenges in Q4
The venture capital market saw mixed results in the fourth quarter of 2024, with artificial intelligence dominating funding globally, while other sectors faced declining activity.
That’s according to a first look at the quarterly PitchBook-NVCA Venture Monitor report released early Tuesday. Starting with the U.S., dealmaking remained relatively robust through 2024 from a counting perspective and saw an increase of 3.3% year-over-year. The increase is a slight surprise given previous quarters, with the report noting that it indicates a holdover of certain venture mechanics from a few years ago.
As explained by PitchBook’s lead VC analysts Kyle Stanford and Nalin Patel, an excess of dry powder from the high fundraising years of 2021 and 2022 has kept many investors active in the market despite the lack of returns. “With the slow fundraising years of 2023 and 2024, we should likely see this relative robustness start to deteriorate as funds run through their available capital and aren’t able to raise a subsequent fund,” the analysts note.
Not surprisingly, AI was the story of both the fourth quarter and the full year, with AI startups driving the majority of venture capital dollars through 2024. The report notes that OpenAI, xAI Corp., Anthropic PBC and others “have become synonymous with outsized deals in venture and seemingly operate in a different funding environment than most VC-backed companies who continue to struggle with lower capital availability.”
Though money may be flowing into AI companies, existing tech companies are not going public. The lack of exits is another defining story of the venture capital market through 2024, even if the outlook starting to improve. Some $149.2 billion in exit value was created through 2024, mostly coming from a handful of initial public offerings.
Unicorns — startups with a valuation of $1 billion or more — now collectively hold two-thirds of the U.S. VC market value and were held tight through the year, creating pressure on investors and limited partnerships with the lack of distributions. Mergers and acquisitions weren’t much better, with only a few large deals of note.
“A more acquisition-friendly environment in 2025 could set the stage for a renewed M&A market, especially if a soft-landing for the economy can be fully engineered,” PitchBook’s analysts note.
Fundraising through 2024 was dominated by large, established firms, with 30 firms accounting for more than 68% of total funding value through 2024. The shift to established firms is noted as a trend that has been developing over several years but hit a peak in 2024. Managers who raised funds through the previous boom in the VC market were unable to generate returns and had portfolios troubled by valuation changes that occurred during the market shift.
Europe
Across the Atlantic, European VC deal value saw a slight decline, while deal counts dropped roughly 16% year-over-year because of a more cautious environment. European deal activity was significantly down across earlier financial stages, with the majority of industries and several regions struggling in a tougher market for funding.
AI drove just over a quarter of the deal value in Europe through 2024 and just over 23% of completed financings. However, unlike the U.S., large, outsized deals did not materialize in the same amount in Europe.
Exit value did pick up in Europe in 2024, largely driven by the listing of Puig Beauty and Fashion Group S.L. in April. However, the report notes that it was a quiet year for European VC-backed exists, particularly on the IPO Front. Capital raised by European-based VC funds was also flat through 2024.
Global
In the Asia-Pacific region, the venture market has struggled through the last few years and that didn’t change in 2024. Unlike Europe and the U.S., the dry powder built up in various markets across APAC was much smaller, further pressuring dealmaking.
China, in particular, saw a material decline in activity due to both internal economic challenges and tensions with the U.S. government. Asia accounted for 20.4% of deal count globally in 2024, its lowest portion in the last decade, and 19% of global VC-backed exists.
“The lack of exits has had a large impact on fundraising for Asia as LPs have been less inclined to re-up commitments at this time,” the analysts wrote. “2024 marked the lowest year for new commitments since 2018 and was the lowest year for closed funds in the market in the past decade.”
Image: SiliconANGLE/Ideogram
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