2024 Venture Capital Outlook: From Freefall to the First Signs of Stabilization?
29 октября 2024 г.
The extraordinary boom in the value of venture capital (VC) investments with a peak in 2021 has come to an end, with values slumping back down to levels five years ago. A timid recovery began in Q2 2024, but with an uneven global rebound.
Venture capital (VC) plays a pivotal role in enabling innovation by providing essential funding to high-risk, high-potential startups and emerging technologies. Unlike traditional financing, VC offers capital to businesses that may not yet have proven business models or stable revenue streams, allowing them to experiment, iterate, and scale rapidly.
In the Global Innovation Index (GII), VC funding has become a key metric for measuring the vibrancy of innovative start-ups. It reflects both investor confidence and the strength of entrepreneurial ecosystems.
Based on the newest venture capital statistics also highlighted in the launch of the Global Innovation Index on Sept 26, 2024 (see webcast), the highlights are:
- The value of VC investments more than doubled from Q2 2020 to Q2 2021, then dropped by 60% two years later in Q2 2023, almost returning to Q2 2020 levels.
- Q2 2024 data shows a slight recovery: VC values rose 50% in Northern America, 12% in Latin America and 6% in Europe, but continued to fall in Asia-Pacific (-19%), and Africa (-80%).
- VC deal numbers grew 55% from Q2 2020 to Q2 2021 and saw further increases through 2021 to 2023, yet we see a 30% drop in Q2 2024.
- In the first half of 2024, Latin America and Africa combined account for only 3% of global VC deals, while North America leads with 37%, followed by Asia-Pacific 35% and Europe at 25%. Still, Latin America’s and Africa’s VC deal numbers are 6 times larger in Q2 2024 than in Q2 2017.
Figures 1 and 2 illustrate the quarterly global VC deal values and the number of deals, respectively. Over five quarters, the total value of VC deals surged dramatically, tripling from $50 billion in Q2 2020 to $170 billion by Q3 2021. However, this rapid growth was followed by a sharp decline, with deal values plunging back down to around $50 billion by 2023.
In contrast, the number of deals showed a more gradual trend. Deal numbers doubled from 3,500 in Q2 2020 to a peak of 7,400 in Q3 2022—one year after the peak in deal values. Despite this growth, deal numbers also suffered a significant 8% drop between 2022 and 2023. Over the past year (Q3 2023 to Q2 2024), we've consistently seen a 30% drop each quarter compared to the same time the previous year. Nonetheless, deal numbers remain more resilient than deal values, with figures still higher than four years ago.
The fluctuation in deal values can be attributed to several factors, including changing economic conditions, rising interest rates, and shifts in investor sentiment. The extraordinary growth during 2020–2021 was driven by pandemic-fueled digital transformation and stimulus measures, which boosted both investor confidence and funding. The sharp decline in 2023 reflects tighter economic conditions, inflationary pressures, and increased caution in the VC market.
Our most recent data from Q2 2024 shows a 20% increase in deal value compared to the previous quarter. However, this rebound is largely driven by a 50% rise in Northern America (United States and Canada), while Europe saw a more modest 6% increase. Meanwhile, deal values continued to decline in Asia-Pacific (-20%), and Africa (-80%) (see figure 3). As for deal numbers, they continue to fall in all regions between Q2 2023 and Q2 2024, most notably in Northern America (-35%), Latin America and Africa (both around -45%).
In Figures 3 and 4, we examine the regional dynamics of VC. These figures show the index of deal value and the number of VC deals across regions. Starting from Q2 2017, VC values surged across all regions, peaking in 2021 before receding. The regions that experienced the most pronounced growth were Latin America and Africa (albeit from low numbers). While 2023 VC activity in Latin America and Africa remain five to 10 times higher than those of 2017, Africa has more recently lost ground, with values in the first half of 2024 slipping by 65% compared to the first half of 2023. Although the number of deals followed similar patterns, this metric has been more resilient than deal value in both Africa and Latin America.
Despite the growth in these regions, the distribution of VC deals is more concentrated. In 2023, Africa and Latin America accounted for only 0.8% and 1% of total global VC deal value, up from 0.1% and 0.4% in 2017 (see figure 5). Meanwhile, Northern America retained half of the total VC deal value in both 2017 and 2023, with the newest data suggesting a growing stake for 2024. A significant shift occurred between Europe and Asia-Pacific during this period, with Asia-Pacific losing 10 percentage points (dropping from 38% to 28%), while Europe gained nearly 10 percentage points, rising from 10% to 19%.
Background
The Global Innovation Index 2024 uses three VC indicators (4.2.2 VC investors, deals /bn PPP$ GDP, 4.2.3. VC recipients, deals/bn PPP$ GDP, and 4.2.4 VC received, value, % GDP), which are obtained thanks to the collaboration between LSEG Data & Analytics, and the World Intellectual Property Organization (WIPO). LSEG Data & Analytics’ private equity screener (Eikon) provides VC data on deal level, amount invested, as well as investor and recipient information, going back at least to 1995.