5 Trends You Need to Know: VC Market Insights Q3 2024

Fundraising is the #1 focus for many of our clients. Clients often ask us when to fundraise, how much to fundraise, the pros/cons of raising equity vs debt, etc.

As fractional CFOs, we help clients from pre-seed to Series B+/M&A navigate an incredibly challenging fundraising market. We included our top 5 hits from our latest Quarterly VC Market Insights Report below, including analysis on VC activity and industry trends. Read the full report here from Pilot’s CFO Services Team.

Want to chat about your own fundraise? Book time with the CFO team here.

Summary

1. According to Pilot proprietary data, 30% of Tech companies have less than 6 months of runway. This is partially due to startups that raised in 2021 and early 2022 coming up to the end of their runway and starting to fundraise again. 
2. Although VC activity has decreased since 2022, there is reason for optimism as the number of VC deals has increased by 12% year-over-year. 
3. Quarterly deal value fell 30% quarter-over-quarter, but remains in line with 2023 values. Median deal size and pre-money valuations for Series A & B rounds have risen significantly year-over-year.
4. The technology sector continues to dominate deal activity, accounting for 40% of all deals in Q3 2024, fueled by substantial investments in AI.
5. For the first time since 2021, the supply of VC capital exceeded demand in Q2 and Q3 2024 for Series A and Series B companies. Data suggests this additional supply is being driven by stronger interest in AI and machine learning startups.

Trend #1

According to Pilot proprietary data, 30% of Tech companies have less than 6 months of runway left.

Pilot data indicates that startups that raised in 2021 and early 2022 are now coming to the end of their runway and starting to fundraise again after taking cost cutting measures to extend runway for as long as possible. This is partially why we see the largest proportion of companies in the <6 month bucket (30%) vs 18% in 2021.

Positive indicators in the VC and macro environment suggest we may see an improvement in the implied runway for companies over the next quarter within our proprietary data set—which we view as a lagging indicator for the health of the funding environment.

Trend #2

Although VC activity has decreased since 2022, there is reason for optimism as the number of VC deals has increased by 12% year-over-year. 

The number of venture deals has gradually started to increase over the past few quarters. 

Since 2022, high inflation and high interest rates have led to a decline in investment activity. However, a 50 bps rate cut in September 2024 suggests a potential turn around, though the speed of recovery will depend on the timing and magnitude of future rate cuts.

Trend #3

Quarterly deal value fell 30% quarter-over-quarter, but remains in line with 2023 values. Median deal size and pre-money valuations for Series A & B rounds have risen significantly year-over-year.

Deal values have also gradually started to increase over the past few quarters.  

Median deal size and pre-money valuations for Series A and B rounds have risen significantly year-over-year, by 25% and 35% respectively. This data also suggests that companies that raised back in 2021 when valuations were at all-time highs are starting to raise additional rounds of funding. 

While quarterly deal value fell 30% QoQ, the decline was largely due to a decrease in outsized deals compared to Q2 2024. Notably, CoreWeave’s $8.6Bn Series C and xAI’s $6Bn Series B accounted for about 25% of Q2’s total deal value.

Trend #4

The technology sector continues to dominate deal activity, accounting for 40% of all deals in Q3 2024, fueled by substantial investments in AI.

Technology continues to be a leader in deal activity, led by outsized AI investment. Notable deals include:

• $1.5Bn Series F for Anduril Industries, a defense tech company that uses AI in weapons systems.‍
• $1Bn Series A for Safe Superintelligence, an AI research lab founded in June by OpenAI co-founder, Ilya Sutskever.

As a percentage of total deals, the following shows a breakdown of VC deals by industry in Q3 2024::

• Technology = 40%
• Healthcare = 30%
• B2B/B2C = 20%
• Other = 10%

Trend #5

For the first time since 2021, the supply of VC capital exceeded demand in Q2 and Q3 of 2024 for Series A & Series B companies.

For the first time since 2021, VC supply exceeds demand for Series A & Series B rounds. This excess supply seems to be primarily  driven by a stronger interested in AI & machine learning startups.

At the same time, for Series C/D & Venture Growth, VC demand continues to exceed supply.

This dynamic for later stage can primarily be attributed to investors retreating due to poor public market performance, liquidity concerns, valuation issues, and nontraditional investors' retrenchment, leading to a widening funding
gap and challenges for maturing startups.

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