The state of venture capital: A look back at Q2 2024

Since the second quarter of 2022, the venture capital space has lacked good news. Quarter after quarter of dire data has left the sector gasping for some positive news to cling to. But is hope finally on the horizon? The Q2 2024 PitchBook-NVCA Venture Capital Monitor hints at the signs of recovery that the venture space so desperately needs. From exit value, fund size, deal activity, and the number of new funds, the data in this quarter’s report looks set to insert wind into deprived sails! Indeed, without getting ahead of ourselves, this is the most positive we at Juniper Square have been about the venture capital space in the past two years.

As PitchBook reported, “The liquidity drought continues to stifle fundraising, with $37.4 billion committed to 255 funds YTD. If this pace continues, 2024 is on track to reach the lowest level of fundraising since 2019.”

Given the current landscape, many venture LPs are thinking to themselves, I can't invest as much as I want because I don't have the liquidity. But remaining loyal to the venture firms who have delivered great realized returns is vital for the long-term.

These concerns have generated big swings on the GP side, creating a dynamic of haves and have-nots. Our venture clients with the longest, most impressive track records are still quickly closing large funds (Felicis raised $800 million in less than three months), but emerging managers are struggling. PitchBook’s data supports what we’ve seen amongst our venture clients, with established managers “securing 77% of fund value YTD, the highest concentration in the last decade…​​Over 63% of capital raised in 2024 so far is in funds of $500 million-plus, which is the second-highest percentage in the last decade.”

At the same time, “Dealmaking data from Q2 reflects an uptick in US venture deal momentum” with quarterly deal count climbing to the highest level since Q2 2022.

The engine that drives venture capital is the successful cycle of capital being grown and recycled through the system. This can only happen with successful exits, which generate distributions back to investors and, thus, new capital to be pumped back into the space.

The venture space has seen a large influx of capital over the past decade, but the pandemic years of 2021 and 2022 saw an unprecedented amount of capital flowing into the space. Combine this influx with the sharp decline in exit activity, and we are left in a situation where a significant amount of venture capital-backed companies need to return capital to the funds invested in them. If we look at the promising IPO activity of venture-backed firms that we have seen in the first half of the year, we expect to see continued momentum in terms of exit value going into the second half of 2024. If we focus exclusively on Q2 data, we see a third consecutive upward quarter in terms of both exit value and the total number of exits. Indeed, for the total number of exits, Q2 hit a 9-quarter high, and the total exit value recorded was the second-best quarter since the first quarter of 2022.

All eyes will now be focused on Q3 performance. Can the momentum gained across the board in Q2 be maintained to drive a return to growth for venture capital? With the anticipation that interest rates have reached their pinnacle and are set to potentially drop in the second half of the year, we are hopeful that the second quarter of 2024 will be looked back on as the quarter when the fortunes of the venture space turned.