2024 is going to be one of the most interesting years of the last decade for venture investors. How do I know?
At the end of each quarter, I spend several days reviewing the performance of my portfolio and analyzing industry data. My goal is to test the predictions that I made against current data, and make new forecasts.
I use this information to write a quarterly update to founders, LPs and other industry leaders. Today, I want to share some of the most important insights with you here:
1. Bridge rounds are back — Last year, 40% of venture deals were either bridge rounds or extension rounds. This is a trend I expect to continue into 2024. A lack of liquidity has reduced the number of venture deals, and, as a result, founders are incentivized to raise bridge rounds with existing investors while pursuing profitability. At the same time, those same investors often have the opportunity to reinvest in their winners at more favorable valuations.
2. VC activity is down across the board — 2023 saw the lowest level of venture investment activity in the U.S. since 2019. Compared to their 2021 highs:
- Deal count is down 17%
- Dollars raised is down by 51%
- Exit value is down by 92%
This aforementioned lack of liquidity drove a corresponding drop in capital committed to venture funds, all of whom rely heavily on LPs recycling money back into the system. I first made the prediction in 2022 that we would experience a slowdown in venture. I believe that this will continue into 2024.
3. Shutdowns have hit a record high — According to Carta, between Jan and Nov of 2023, the number of startup shutdowns was nearly triple that of 2021. Even startups that raised a significant amount of cash in the last several years are facing bankruptcy and shutdowns. In fact, a study done by Pilot found that 57% of VC-backed startups had < 18 months of runway. Since the average fundraising process takes 6 months, we’re likely to see a lot of startups seek venture financing in 2024.
I believe this “correction” will continue through 2024. With less capital accessible to founders, there will be more competition for venture dollars between startups. As a result, this creates a phenomenal buying opportunity.
4. Small checks drive early-stage deals — It’s easy for angel investors and venture capitalists to assume that founders will only accept certain check sizes. I’ll be the first to tell you that for a passionate angel, it’s rare for a founder to turn away a check of any size!
The biggest mistake I see from first-time angel investors is to invest too much money into too few companies. My advice: Start small, make more investments than you originally planned for, and put less money into each one than you initially thought to. In fact, did you know that, in most rounds that raised up to $5M, 25% of the checks were under $25k?
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