VC growth slowed this year; outlook more positive for 2025
Investors in the venture capital space have seen lower returns in 2024 as fewer and less profitable exits were recorded in a year where overall growth for VC has slowed.
A new report published today (Dec 11) by industry analysts at Preqin reveal that the global VC AUM was US$3.1 trillion by the first quarter of 2024, but by the third quarter this had only been boosted by $84.9 billion across 800 funds, compared to $135.9 billion from 1,645 funds in 2023.
Deal activity is set to be lower than in 2023, with the first three quarters of 2024 producing 14,056 with an aggregate value of $201bn.
Fundraising has become harder for funds as investors weighed the impact of weaker returns - by Q3 2024, venture capital exits totaled 852 with an aggregate value of $112bn, continuing the downward trend from 2023 when there were 1,969 exits aggregately valued at $270bn.
Although the largest drop was in Asia-Pacific, North America also recorded a reduction in both volume (from 580 to 403) and value (from $78.5bn to $69.8bn) of exits.
Larger funds tended to attract most of the new capital with first-time funds seeing only 5% of the total fundraising, the lowest since Preqin began tracking the data in 2001. First-time managers raised $4.6bn across 106 funds (at final close) by Q3 2024, with their aggregate fundraising value down 77% year-on-year from $20.1bn in 2023.
Another negative for investors was the continued rise in management fees, the highest among alternative asset classes and a 13-year high, with a median of 2.05%, up from a flat 2.00% since 2012. The mean was up to 2.24% having hovered around 2.00% since 2019.
The outlook for 2025 is better, with 62% of surveyed venture capital fund managers expecting exits to increase in the next 12 months, up from 40% in the 2023 survey.
“Falling rates in the US may prompt an improvement in performance and exits,” said Cameron Joyce, global head of Research Insights, at Preqin. “We expect early-stage venture capital to be better positioned than later stages over the coming year. Nonetheless, venture capital remains the best method for investors looking to gain exposure to innovation and technological disruption.”
