General Trends

1. VC Early Stage Resilience: The seed market has been particularly resilient in recent years, the time from seed to series A continues to grow, and now those companies will need to start raising more money at later stages.

2. VC Late Stage Suffering: On the flip side, late-stage rounds remain very challenging with upside down cap tables.  As more companies raise flat to down rounds, the stigma to do so might dissipate and unleash significant deal flow for later stage companies that continue to produce strong results.

3. Market Approaches: Companies that preserved cash and extended their runways during the market changes are likely to approach the market in 2024.  Investors are also cognizant that deals are more attractive now and are seeking to increase deployment speeds.

4. VC Zombies: 38% of VCs disappeared from dealmaking in 2023.  Make sure you’re spending your time with VCs deploying capital, not just window shopping.  Many VC firms are also trying to cut staff to rationalize the new environment, so make sure you’re also speaking with staff that will be with the firm in a year.

5. IPO Market Hangover: Last year's PE-backed IPOs fell 74% below their annual average from 2011-2020.  IPOs during the boom period generally performed poorly, so Wall Street is recalibrating to regain interest.  With the S&P 500 hitting new highs, banks seem to be ramping up cautiously.  Exchanges in the Middle East are seeking to play a bigger role in the next wave of IPOs.

6. M&A Also Struggling: The M&A market for VC backed startups dropped 31% in 2023 with quarterly data continuing to show a bad trend through Q4.  As companies struggle to raise capital and runways are lower, many companies may capitulate at lower exit valuations.

Sector-Specific Trends

1. AI: AI is the newest boom cycle, and everybody wants in on the game.  New entrants such as Elon Musk’s xAI and OpenAI will likely raise huge rounds this year.

2. FinTech:  Following a boom period, FinTech had a more difficult 2023 and has returned to normality.  The market appears to be bifurcating between tech-enabled financial service providers and pure-play software plays for the financial services market.  While many VC firms prefer the SasS revenue streams of the latter, the vertically integrated firms embedded in finance might be best positioned long-term.  Given Stripe, Klarna, Plaid, Pleo, and Apex Fintech Solutions have all signaled preparations for IPOs, 2024 will be a critical year for the space.

3. Web3: Funding to crypto, blockchain and Web3 protocols fell 74% in 2023.  Bitcoin might be up >100% from its lows last year and new ETFs have been approved, but few companies in the Web3 space ever achieved true product-market fit beyond the hype.  For now, most investors are too burned to return.

4. Energy: The energy sector is anticipated to continue attracting significant investments and M&A ($380.0B last year, up 8.26%), with cash flowing producers reinvesting in energy transition projects, renewable energy and battery technologies.

5. Biotechnology and Pharmaceuticals: These sectors are expected to grow due to their roles in health, agriculture, and environmental solutions.

6. Agritech and Foodtech: These sectors are set to see a surge in technologies that increase efficiency and reduce environmental impact, including precision agriculture and sustainable food production systems.

Here is the link to the article on LinkedIn.