Temperature Check: What’s The State of Private Capital In 2024?

Atlanta-based BIP Ventures is out with its latest State of Investing and Startups report.

This mid-year private capital report provides some important color and context into how the venture capital world has changed following the rise of generative AI and 2023’s venture banking crisis. And the data gives us some interesting insights into how VC trends might evolve in 2024.

Temperature Check: What The Report Says About Startups

As Hypepotamus reviewed the most recent report, these seven points stood out to us:

  • There is a supply-demand imbalance for startups, with the venture-growth ratio hitting its highest level in the last decade. There is an estimated $300 billion of dry powder sitting on the sidelines.

  • In the fiscal year 2023, investors deployed $11.6 billion into Southeast startups over 2,184 deals. Georgia startups received 15% of that total capital ($1.7 billion).

  • In the Southeast, SaaS is still king. Funding into software startups dramatically outpaced other sectors.

  • Early 2024 VC activity is on pace with what we saw in 2023, but still trails behind the highs we say in 2020-2022.

  • But investing remains tricky in 2024, as the average deal size gets bigger and inflation rates remain high.

  • The tech IPO market is showing signs of thawing, but valuations remain high.

  • The venture market is described as “peak investor friendly,” as alternative investments are expected to increase from eleven percent to twenty percent of consumer household investable assets.

What Investors Are Saying

Following the release of the report, BIP Ventures’ General Partner and COO Mark Flickinger told Hypepotamus that “it was nice to see the startup investing market stabilize” after the venture banking crisis stifled growth for a significant part of 2023.

Managing Partner Mark Buffington told Hypepotamus that one of his main takeaways from the report is that even as early-stage valuations have held up, later-stage ones have not.

“By virtue of supply and demand, it is likely valuation will remain repressed. It’s not a great message for founders or the market but it’s what the data is showing,” Buffington added. “If anything is surprising, it’s the rate of decline in funding and how quickly markets have adjusted. I can’t decide if it’s an overshoot, a hangover effect of the looser years of activity, or if there’s some other fundamental underneath driving it. Relative economic choices will influence the risks people are willing to take and that will impact capital formation.”

Mark Buffington
Mark Buffington – BIP Ventures 

What Investors Need To Know

Another thing the report highlights that investors need to be aware of? It is not just top 20 VC firms that are making strong returns, Buffington added.

“One might argue they might be coming back into favor with early-stage capital drying up. On the other hand, they manage such large funds and have to deploy so much capital that they may not be able to deploy at the earlier stage,” he said. “They continue to chase highly speculative markets like crypto, and that’s been a roller coaster. You’ve seen the launches of ETF funds pushing these speculative vehicles. It makes me question how much they’re just selling products or if they’re investing in things with real economic value and merit. That’s the other thing that surprises me – the investment trends.”

 

A Focus On The Second Half Of 2024

As we move into the second half of 2024, Buffington said it is worth keeping an eye on how many emerging fund managers are actually able to raise their next funds. But it is also worth paying attention to how investors look at and deploy capital into artificial intelligence.

“It’s so quickly becoming ubiquitous, and a lot of money will get trapped in GenAI. You see a lemming effect with these hype cycles. It happened with bitcoin, big data, social media, search…there’s a huge hype cycle, money pours in, and a great chunk of that money gets written off,” he told Hypepotamus.

Moving beyond generative AI, Buffington said he is interested in objective AI, or “the ability of computers to think and understand context.”

“Objective AI is interesting. It involves the ability of companies to partner with humans to make decisions, but I think we’re 10-15 years away from seeing its impact,” he added.

flickinger
Mark Flickinger – BIP Ventures 

For Flickinger, patience is the name of the game for those investors looking at AI deals moving forward.

“There is a lot of excitement with AI, as there should be. However, from an investor’s perspective, with over exuberance comes risk. There will be many ways to “win” with AI in the future, but right now it is difficult to discern which AI companies are actually innovating in the space and which are just using the lexicon to capture the attention of ill-informed customers or investors,” he said.