Sensing a Shift in Venture Activity
From downturn to uplift, why the next surge in venture is on the horizon
In the cyclical world of venture capital, investors and entrepreneurs alike are accustomed to ebbs and flows, peaks and troughs, highs and lows.
But recently, the data paints a picture of venture funding being unable to find its footing, with deal activity down from its previous highs.
Here’s a piece from Jeff Grabow of EY summarizing the flat activity lately in Q2, and he notes a 10% drop in seed volume year over year. And here’s the Financial Times with dour news (sub required) on startup failures jumping 60% over the past year.
Yet, if you listen closely to the conversations happening behind the scenes, a different story begins to emerge. The story is a narrative of anticipation, optimism and, perhaps most importantly, preparation.
I’ve looked at the numbers, and while this is not a deep stat eval, I believe the tide is turning and that the downturn from the previous months and quarters is reversing. There’s something else worth noting: the undercurrent of recovery.
The sentiment among those I’ve chatted with recently is shifting toward a more sustainable pace of investment activity, and this shift is tangible. This is anecdotal, I know, but the conversations I’ve had with various players in the venture and tech communities reveal a growing consensus: the last quarter of this year and early next year should bring renewed activity.
Signs of an Uptick
Despite the challenges that exist with exits—whether via IPOs, M&As or secondary transactions—there’s a strong incentive for LPs to push for liquidity sooner rather than later.
This likely won’t happen with IPOs. Are they a thing anymore? The window seems tightly shut. But the pressure is starting to manifest in more creative exit strategies, like Sequoia Capital's recent move to offer LPs the opportunity to buy shares in Stripe. Deals like that would set the stage for a broader trend I believe will culminate in a surge of exit activity. I’m not saying they’re stellar exits, but they’re returns, they’re liquidity. And they will in turn lead to more venture fundraising and, ultimately, increased investments in new deals and existing portfolios.
Whatever exits we see between now and the next few months will serve as a catalyst for renewed investment activity. We won’t see the same low levels we saw 2020-22, but the market is ready to find its footing once again.
Beyond the numbers, there’s a palpable sense of momentum building. Again, anecdotally I’ve heard from several contacts in the venture space who are starting to see a pickup in business. Whether it’s early-stage B2B tech, AI companies, or sectors that have been quieter lately, there’s a feeling that things are moving again.
For example, check out this Q2 newsletter post from Cervin Ventures on promising signs that stability and growth have returned to the venture market.
And here’s a LinkedIn post from the founder of Crackle PR, which is also positive.
Overall Meaning
Here’s what this means for us all:
If you’re an entrepreneur, now is the time to practice your messaging and dust off that pitch deck to get it ready for when the funding floodgates open.
If you’re an investor, now is the time to sharpen your focus, align your team and prepare the term sheets, so you’re ready to move quickly when the right opportunity arises.
And for those of us in the storytelling space, it’s about ensuring that when this wave hits, the narratives you pedal need to be sharp, compelling, and ready to stand out in a crowded market.
My advice is prepare now for the coming rush of activity.
Here’s the Bottom Line Up Front: LPs are looking for liquidity and liquidity will drive more fundraising, which in turn will fuel increased investments. This boost in activity is likely to gain traction in Q4, but more likely Q1 2025.
So let’s be ready!
Whether it’s helping you craft the perfect pitch, providing media training, or sharpening your strategy, my partners and I are here to make sure that when the next wave of venture activity hits, you’re riding high on its crest.
Tell me what you think.
Artwork by Vecteezy.com.