Footnotes
1 Venture Pulse Q1'24, Global Analysis of Venture Funding, 乐鱼（Leyu）体育官网 Private Enterprise. April 2024.
2 Ibid.
3 Ibid.
4 IPO Insights Q1 2024. 乐鱼（Leyu）体育官网 LLP. May 2024.
Unlocking opportunities: Navigating private company funding
Explore challenges facing private company leaders in securing funding, and learn how to navigate this challenging environment.
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Find out more about this quarter鈥檚 trends and results in Venture Pulse, a quarterly report by 乐鱼（Leyu）体育官网 Private Enterprise.
Initial public offering (IPO) and merger and acquisition (M&A) activity is depressed. Bridge financing is becoming hard to come by. And venture capital (VC) investors are pulling back from dealmaking. This is a challenging environment for private company leaders looking for funding.
In this edition of Privately Speaking, we explain the current trends influencing private company financing, identify the challenges, and offer some advice to help founders and executives plan their growth strategy.
Backing away from the deal table
This is not an easy time to be going out for funding. According to the most recent Venture Pulse report, VC investment in the US fell from $40.1 billion in Q4鈥�23 to $36.6 billion in Q1鈥�24 as investors pulled back from dealmaking, particularly for later-stage rounds.1 Not surprisingly, the number of reported down rounds has continued to tick up in the quarter. Many of those hoping to stave off a new round of funding with some bridge financing found themselves disappointed.
All signs suggest these trends will continue. Ongoing market challenges鈥攊ncluding the lack of exits, high interest rates, and continued geopolitical uncertainties鈥攚ill keep VC investors cautious during the second half of the year, particularly as the election draws near.
The anomaly of AI
Interest in artificial intelligence (AI) remained very strong among VC investors in the US in Q1鈥�24, led by the $4 billion raise by Anthropic.2 More recently, Elon Musk announced that his AI venture (xAI) had raised $6 billion, giving it a valuation of $24 billion barely a year after its founding.3 Indeed, VC investors showed a willingness to write checks, even for small percentages of companies, in order to get into the game.
However, this investment frenzy is likely to slow in the near term as the largest players continue to gain traction and others lose steam. Interest in AI will likely begin to shift towards companies with unique value propositions, including industry-specific solutions and tools, and to companies able to prove the value of their tools in terms of enhancing productivity or reducing headcount.
鈥淐ompanies that have got true generative AI solutions鈥攕o the large language models and the like鈥攖hose are the startups that are going to be funded the most because there鈥檚 a lot of FOMO there. But the next wave of AI investment is likely to be more targeted, more vertical or industry specific, such as solutions targeted towards documentation, task-heavy industries like fintech, real estate, and proptech where the value of AI is potentially very significant.鈥澛�
-Francois Chadwick, Partner, 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 LLP
Get the latest insights on US IPO activity from the 乐鱼（Leyu）体育官网 Private Enterprise specialists in IPO Insights.
IPOs are up, but returns are down
The good news is that IPO activity is up over the lows of 2022. In fact, according to the most recent edition of IPO Insights, volume in 1Q鈥�24 rose by 24 percent over 4Q鈥�23.4 But the vast majority of the new issues in the first quarter ended the period below their opening price. That has undermined confidence. A growing number of candidates are pushing back (or canceling) their plans.
鈥淭here are a lot of eyes on the IPO market right now. Hopefully, we see a couple of successful IPOs in the middle of the year and then others follow on鈥攃reating the value and the wealth that can then be put back into the market. If we do see a couple of successful IPO exits or companies indicating that they鈥檙e going to go, we鈥檒l start to see VCs loosening their purse strings, in part because their LPs will start putting pressure on them to invest.鈥�
-Conor Moore, Global Head, 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 International and National Leader, 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 LLP
Recent economic data suggests high interest rates will persist for longer than many anticipated. But the timing is tight; if interest rates don鈥檛 fall over the summer, then the upcoming election will keep the lid on the IPO markets well into Q4鈥�24.
M&A exit doors remain shut
M&A activity remained stalled in the first quarter of 2024, driven by a number of factors, including higher interest rates making it more expensive for companies to conduct acquisitions. The regulatory climate may have also subdued M&A activity, with a number of deals blocked by regulators over the past year.
That being said, M&A activity is expected to pick up in the second half of the year as start-ups without a clear path to IPO or the ability to raise funds run out of cash and look to sell. This is likely not the outcome most private company owners are hoping for.
Venture-backed exit activity ($B) by type in the US
2018-2024*
Source: Venture Pulse Q1'24, Global Analysis of Venture Funding, 乐鱼（Leyu）体育官网 Private Enterprise. April 2024.
What to expect going forward
Heading into the second half of the year, VC investors are expected to concentrate their bets on quality assets, focusing more on what return on investment new dollars can generate rather than on providing life support capital to businesses that have been unable to perform.
At the same time, the prospects of a big bang opening of the IPO markets in 2024 are looking increasingly long. A few successful IPOs over the summer would certainly help build momentum. But much will depend on how soon and how steeply interest rates start to fall. The keys to the IPO window are in the Federal Reserve鈥檚 hands.
What鈥檚 your next move?
Before you decide to put your hand out for more money, make sure you have done everything you can to right-size the business. Founders are being told to sweat their assets and stretch their budgets further, reduce headcount without impacting revenues, and prioritize near-term opportunities over long-term future growth.
The situation can change quickly. And some predictions suggest that鈥攅ven in a pessimistic scenario鈥擨PO volumes could rise quickly. And that would help encourage VC capital to start flowing again. Private company leaders should be prepared.
鈥淣ow is the time to prepare for the potential reopening of the IPO window. Take advantage of the runway you have now to prepare, as waiting and rushing could end up being more costly for you.鈥�
-Shari Mager, US National Capital Markets Readiness Leader, 乐鱼（Leyu）体育官网 LLP
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Meet our team
Conor Moore
Global Head of 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 International, and Head of 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 US
Francois Chadwick
乐鱼（Leyu）体育官网 Private Enterprise Global and National Lead Partner 鈥� Emerging Giants, 乐鱼（Leyu）体育官网 US
Shari Mager
Partner, U.S. National Leader, Capital Markets Readiness, 乐鱼（Leyu）体育官网 US
Conor Moore
Global Head of 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 International, and Head of 乐鱼（Leyu）体育官网 Private Enterprise, 乐鱼（Leyu）体育官网 US
Francois Chadwick
乐鱼（Leyu）体育官网 Private Enterprise Global and National Lead Partner 鈥� Emerging Giants, 乐鱼（Leyu）体育官网 US
Shari Mager
Partner, U.S. National Leader, Capital Markets Readiness, 乐鱼（Leyu）体育官网 US
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