First Quarter Report Card

April 09, 2024

as a student, Warren Buffett was known for getting good but not great grades

TBT

With Q1 2024 in the books, now’s the time for a quick snapshot regarding the state of venture capital.

Before we begin, I want to take point your attention towards U.S. VC deal value over the past five years (Pitchbook):

  • 2019: $151.5B | 13,652 deals

  • 2020: $173.1B | 13,759 deals

  • 2021: $349.5B | 19,078 deals

  • 2022: $241.6B | 17,709 deals

  • 2023: $165.8B | 14,491 deals

The elephant in the room is venture valuations in the 2021 year. In the past two decades, the jump in venture deal size from 2020 to 2021 (+101.9%) is unrivaled. The next closest jump is from 2017 to 2018 (+61.0%).

So what happened that year?

Mega-rounds.

Fundraising hit a new high, particularly in late-stage funds that have the ammo to participate in unicorn deals, such as Tiger Global. The number of mega-rounds ($100M+) nearly tripled from 335 to 819. A hot IPO market and strong venture returns the year before caused many LPs to double down, falling prey to hot hand fallacy.

Notable IPOs during 2021:

  • Roblox ($30B valuation at IPO)

  • Robinhood ($32B valuation at IPO)

  • Coinbase ($86B valuation at IPO)

Passing Marks

Now back to the present.

Recent headlines have highlighted the drop in funding, deal volume, exits and otherwise in venture investing.

The total amount of capital raised by VC firms this year stands at $9.3B through 3 months, theoretically tracking for $37.2B. For context, this number is so low compared to recent years that we would have to venture as far back as 2017 to find a fundraising total even close to that ($43.9B).

Exits don’t provide much room for optimism either. At $18.4B, we are on pace for $73.6B. Check out the last 6 years in VC exits:

  • 2019: $251.0B | 1,343 exits

  • 2020: $297.4B | 1,266 exits

  • 2021: $797.7B | 1,997 exits

  • 2022: $79B | 1,409 exits

  • 2023: $66.3B | 1,073 exits

  • 2024 (est): $73.6B | 892 exits

Although there have been significantly less exits, fundraising targets have been cut, and deal volume is going down, now is arguably the perfect time to invest in a VC fund with a defined value proposition.

❝

Be fearful when others are greedy and greedy when others are fearful.

Warren Buffett, rich off Coke

from Stepstone

According to the Stepstone Group, 2024 very well could be a golden year for venture investing. Investing in a golden year leads to significant alpha over S&P500 returns and similar benchmarks.

The thesis is simple: with less fundraising dollars chasing a similar number of investment opportunities, valuations will continue to remain attractive. Prices will dip below value, giving an edge to investors who have capital to deploy.

Of course, a lot of other factors will play into delivering returns and distributions, but historically speaking, the silver lining to fundraising woes is the opportunity that awaits courageous LPs.

Headlines:

  • A Redbird Capital backed college basketball tourney with $2M in prize money is changing the NIL landscape. Read more here

  • Blackstone is looking to take French beauty giant, L’Occitane, private. Read more here

  • Vista Equity is taking revenue optimization platform, Model N, private in a $1.25B deal, marking Vista’s fifth take private in 18 months. Read more here

  • John Calipiri leaves Kentucky for Arkansas, with a $5M NIL budget to recruit top talent. Read more here

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