Based on data in Carta’s recently published State of the Markets report, the venture markets have experienced a slight uptick in number of deals and in dollars raised quarter-over-quarter.  Companies on Carta’s platform completed 4% more deals and raised 12% more capital during the second quarter of 2024 compared to the first quarter.  During the first half of 2024, venture capital funds invested a total of $39.6 billion in 2,525 deals.  Compared to the second half of 2023, investments increased by 5%, but deal volume declined 18%.  While those numbers may not sound remarkable, they may signal positive direction for the venture market.

Down-rounds fell to a six-quarter low, with down-rounds accounting for 17.4%, compared to 24.2% in the first quarter of 2024.  The number of seed stage deals declined by 2%, Series A deal count increased 16% and Series B deal count increased 5% quarter-over-quarter.  The number of Series C deals declined by 7%, while later-stage Series D deals increased notably, by 35%.  Early-stage rounds accounted for 29% of capital raised, Series B and C rounds accounted for 46% of funding, and late-stage deals accounted for 25% of capital raised.

Data source: Carta

Carta reports that overtly investor-friendly terms in financing rounds have become less prevalent since 2020 for both primary rounds and bridge rounds.  For example, deals with participating preferred stock have declined from 8.6% to 5.1%.  Deals that incorporate cumulative dividends have declined from 8.2% and 3.3%.  The terms of preferred stock in recent transactions also have experienced some change—with the incidence of transactions incorporating a liquidation preference of over 1x declining, with approximately 6% of deals including these terms at the beginning of 2023 and now only 3.7% of deals incorporating such terms.  Bridge rounds tell a similar story as far as participating preferred stock and cumulative dividend terms.  With these modest moves back toward what many founders consider “normal” terms, it is likely that additional founders and companies will seek venture funding from traditional venture funds, leading to an uptick in market activity.

Source: Carta

The decline in median pre-money valuations has slowed since the beginning of 2022 compared to the decline in total deal volume, particularly in early-stage rounds. In the second quarter of 2024, seed valuations surpassed levels in the first quarter of 2022, increasing by 2%.  Valuations at post-seed stages are generally moving up but have yet to reach their 2022 levels.

Whether your interest in the venture market stems from investing or innovative companies, a robust market is welcome and creates additional opportunities.  When the economy slows or other uncertainties affect decisions (think inflation, war, elections), many players in the market just slow down to wait for issues to become clear.  This is normal risk-avoidance behavior, but it tends to take the “venture” out of the venture capital world and slow everything down.  We welcome the signs of an upswing.