- The initial quarter witnessed a notable decline in venture deal volume within the United States, marking the lowest point since 2017 as reported by PitchBook data released recently.
- This trend was mirrored globally, with the overall volume hitting its lowest level since 2016, and the total deal value dropping to a level not seen since 2019.
- PitchBook analysts highlighted concerns about persistent inflation leading to a postponement of anticipated interest rate reductions until the latter part of the year, while acknowledging the looming possibility of a recession.
Despite significant investments pouring into burgeoning artificial intelligence startups at staggering valuations, the broader landscape of venture funding remains frigid.
In the initial quarter, the volume of venture investments in the U.S. plummeted to its lowest point since 2017, based on the latest data from PitchBook. This downtrend was echoed globally, with the worldwide volume hitting its lowest mark since 2016 and the total deal value declining to a level not witnessed since 2019.
The scarcity of deal activities indicates that, despite the resurgence of tech stocks last year and the ongoing excitement surrounding generative AI, venture capitalists are predominantly adopting a cautious stance. Following a surge in startup funding to unprecedented levels in 2021, the subsequent years witnessed a sharp deceleration as concerns over inflation and escalating interest rates prompted investors to seek refuge in safer assets, compelling tech firms operating at a loss to prioritize efficiency over expansion.
While the Federal Reserve has hinted at potential cuts to its benchmark interest rate in 2024, the current stance remains unchanged. Federal Reserve Chairman Jerome Powell emphasized the need for policymakers to thoroughly assess the prevailing inflation scenario, thereby introducing uncertainty regarding the timing of any future interest rate adjustments.
PitchBook analysts, in an email accompanying the firm’s data, noted, “Persistent inflation has deferred hopes of interest rate cuts to the latter part of the year, with the looming specter of a recession. We anticipate a subdued uptick in deal activities in the immediate future.”
The first quarter recorded 2,882 venture deals, marking the lowest figure since the third quarter of 2017, according to PitchBook. The total value of these deals amounted to \(36.6 billion, representing a 62% decline from the peak of \)97.5 billion in the fourth quarter of 2021. While the latest quarter’s figures were relatively consistent with those from the third quarter of the previous year, they otherwise signify the lowest values since the conclusion of 2019.
On a global scale, the 7,520 deals executed were the fewest since the third quarter of 2016, with investments totaling $75.9 billion, the lowest since mid-2019. Analysts highlighted the challenges faced by venture capitalists worldwide in delivering returns to limited partners over the past couple of years, contributing to their reluctance to reinvest.
Amidst these subdued trends, there were some positive indicators in the market, particularly in the realm of Initial Public Offerings (IPOs). Notably, social media platform Reddit and Astera Labs, specializing in data center connectivity chips for cloud and AI infrastructure firms, made their market debuts in March, marking the first two venture-backed tech companies to go public in the U.S. since September. Additionally, data security software vendor Rubrik submitted its IPO prospectus during this period.
PitchBook data revealed that Reddit and Astera collectively accounted for 73.4% of the total exit value in the U.S. during the first quarter.
“The potential rise in IPO activity has generated excitement within the market narrative, given the sluggish pace of exits over the past two years,” remarked the analysts at PitchBook.
