Venture deals in U.S. fell to lowest level since 2017 in Q1: PitchBook

The trading floor of the New York Stock Exchange (NYSE) prepares for Reddit’s IPO on March 21, 2024 in New York. Social media platform Reddit priced its IPO at $31 to $34 per share on Wednesday.

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Even with hot AI startups achieving major investment rounds at massive valuations, the broader environment for venture capital funding remains frosty.

Deal volume for U.S. venture capital investments in the first quarter fell to its lowest level since 2017, according to data released this week by PitchBook. The story has been similar around the world, with global volume hitting its lowest level since 2016 and total transaction value falling to a level not seen since 2019.

The lack of deals shows that, despite tech stocks’ rebound last year and continued hype around generative AI, venture capitalists remain largely on the sidelines. Startup funding reached record levels in 2021, before slowing significantly the following two years, as inflationary concerns and rising interest rates pushed investors toward safer assets and forced loss-making tech companies to focus on efficiency rather than growth.

The Federal Reserve has indicated that cuts to its benchmark interest rate will likely come in 2024, but for now they remain stable. Fed Chairman Jerome Powell said Wednesday that it will take some time for policymakers to assess the current state of inflation, leaving the timing of possible interest rate cuts uncertain.

“Persistent inflation has driven hopes for an interest rate cut in the second half of the year, and a recession remains a possibility,” PitchBook analysts wrote in an email accompanying the stock data. Company. “We do not expect transaction activity to pick up significantly in the near term.”

There were 2,882 venture capital deals in the first quarter, the lowest since the third quarter of 2017, according to PitchBook. The value of these transactions totaled $36.6 billion, down 62% from the high of $97.5 billion reached in the fourth quarter of 2021. The latest quarter was roughly equal to the third quarter figure of last year, but it is otherwise the lowest since the end. of 2019.

Globally, the 7,520 transactions represent the lowest number since the third quarter of 2016. And at $75.9 billion, investment is the lowest since mid-2019. Analysts said venture capital firms around the world have struggled to return funds to limited partners over the past two years, making many of them reluctant to reinvest.

Some positive signs for the market have come in the form of IPOs. Social media site Reddit And Astera Laboratories, which sells data center connectivity chips to cloud infrastructure and AI companies, debuted in March. They are the first two venture-backed technology companies to IPO in the United States since September of last year. Rubrik, a data security software company, filed its IPO prospectus this week.

According to PitchBook, Reddit And Astera accounted for 73.4% of the total value of releases in the United States in the first quarter.

“The prospect of increased IPO activity has created a buzz in market discourse due to the slow pace of exits over the past two years,” PitchBook analysts wrote.

WATCH: Y Combinator CEO Gary Tann on Reddit’s IPO


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