The outlook for venture capital & tech in 2024 – growing pains
In the latest episode of the BVCA’s 40th anniversary podcast series, a trio of VC experts came together to discuss the outlook for venture capital and the broader tech ecosystem in 2024. After covering off the economic shocks and difficult market conditions seen in 2023, the conversation examined how the market will play out in the year ahead.
The record levels of investment we saw in 2021/22 have not exactly come crashing down, but have reverted to pre-covid levels or maybe slightly lower. Despite a downbeat overall picture, the levels of investment for earlier stage companies have held up, especially as they didn’t see the huge increases at later investment stages in 2021/22. Taking a longer term look back, the ecosystem is still far ahead of where it was a decade ago, And European venture, led by the UK, is still in a growth phase of catching up with the US.
The panellists felt that the economic uncertainty will continue in the short term leading to problems for companies hanging on in the hope that things will improve. Expectations were that a true recovery may have to wait until at least 2025.
Given this, the VCs provide their advice for founders:
- Survive to ’25 – for those founders and companies that have enough cash to get through in 2024 they should then look to come back to the market next year.
- Look to your board – is your board just a reporting function, or does it really support the business? For those that need to go through a flat or down round, sober and wise counsel is needed, and ensuring you have the right balance, size, and membership of the board, is vital.
- Exiting at speed – if your company is approached by an acquirer, ensure your documentation, data, and legal advice is sorted as early as possible before the approach. Offers can have short timeframes and an acquirer is not your friend until after the deal is done!
For investors, some of the following themes and trends were highlighted:
- A bridge too far – the chain from series A, to series B and beyond isn’t functioning as companies look to extend runways and companies avoid the capital markets, but this will not last.
- Fundraising pains – experienced LPs that invest through cycles will continue to deploy with managers with strong track records and capital will be recycled via re-ups. However capital for first time find managers and emerging managers will be harder to come by. Demonstrating a differentiated investment strategy or specialism that makes you stand out from the crowd, can make the difference.
- Looking beyond IPO – when it comes to exits, VCs need to get creative. The appetite in the public markets will not recover in the short term, but M&A activity will increase as the big tech corporates look to the future. Profitability, or being able to demonstrate the path to it, is more important than ever.
This is an industry that has ridden the wave of previous economic cycles, booms, downturns, and ultimately come out stronger. Many think the vintages in coming years will be the some of the best as the market evens out. The Investment Compact, a commitment from VC and growth equity funds to build relationships with UK pension funds, could also be a gamechanger for UK venture and tech more broadly, but one which will require perseverance and patience.
Details about how to sign up to the Investment Compact can be found here on the BVCA website, as well as our excellent research reports and training courses. Finally, a massive thank you to Christoph Ruedig (Albion VC), Kerry Baldwin (IQ Capital) & Stephen Nundy (Lakestar) for taking part in a fascinating discussion.