In the second quarter of 2024, the amount of venture capital in the USA reached $55.6 billion, a 47% increase compared to the previous period and also the highest in the past two years. However, the continued slump in exit activities also poses challenges to the sustainability of VC financing and subsequent investments.
According to the latest data released by the well-known investment database PitchBook on Wednesday, the United States' venture capital reached $55.6 billion in the just-ended second quarter of 2024, also the highest quarter in nearly two years.
The data shows that this number increased by 47% from the first quarter of this year, mainly driven by huge investments in the artificial intelligence industry, including transactions that raised $6 billion for Musk's xAI. Based on the market's excitement about artificial intelligence technology innovation and potential returns, VCs are vigorously investing despite the headwinds of high interest rates from the Fed.
Regardless, the surge in VC investment in the second quarter of this year still falls far behind the historical record of $97.5 billion in the fourth quarter of 2021. The reason behind this is also clearly related to the sluggish IPO market - VCs cannot exit from the secondary market, and their investment enthusiasm naturally has to be limited by their wallets.
According to historical data, the previous wave of US VC investment coincided with the previous wave of US stock IPOs. In the hot year of 2021, the number and financing amount of US stock IPOs both skyrocketed, and even triggered grassroots analysts from Goldman Sachs protesing against high work intensity with PPT.
But as the Fed's "water flooding" policy finally triggered an inflation crisis, the IPO market also quickly cooled down in one interest rate hike after another. For example, in the fourth quarter of 2022, the US market saw a total of 20 IPOs with a total fundraising of $3 billion; a year ago, also in three months, the US stock market saw 234 IPOs, with a total fundraising of $65.44 billion.
(The US stock IPO market also saw a sharp decline in 2022, source: S&P Global)
(Global VC exit activities also sharply declined starting 2022, sources: Axios, PitchBook)
As a result, the global VC industry has been continuously caught in the difficult state of exiting since 2022. So far, we have not seen the boosting effect of investment in the AI industry.
According to the latest data on Wednesday, VC exit activities in the second quarter of this year continue to face headwinds, and a series of small-scale transactions generated a total exit value of nearly $23.6 billion, further down from the $37.8 billion in the first quarter. Even with hyped-up public listings like cloud data management company Rubrik, the atmosphere of the entire IPO market remains lifeless.
Kyle Stanford, an analyst at Pitchbook, said that in order to enable venture capitalists to see an increase in investment returns, we need to see large technology companies go public at a faster rate than in the first half of the year.
The IPO "drought" of the past two years has also brought many difficulties to VC financing, especially for new VC companies lacking market validation. In the first half of this year, US VCs only received investment commitments of $37.4 billion, dominated entirely by large VCs. For example, Andreessen Horowitz (A16Z) alone raised $7 billion in a new VC fund.
Editor / jayden