Venture capital in 2024: Six predictions from an investor

By Elena Mazhuha, partner at F1V

Many startups struggled to raise funds in 2023, and they will likely struggle this year.

However, 2024 could still bring some interesting market changes: Startup valuations may go up, while the secondary share market may gain more activity. What will remain constant is the diminishing favor of generalist funds in the eyes of LPs, along with high investor interest in AI.

Here’s my opinion on how venture capital will change this year.

Following the startup valuation resets of 2022, early-stage valuations rebounded to a healthier level in 2023. However, they didn't plummet drastically as many had predicted.

In 2024, I don't expect significant changes in valuations across all stages. However, if the optimistic interest rate forecasts for 2024 hold true, startup valuations may see a slight increase by the year's end.

However, because of the tough environment, VCs may remain cautious about investing at later stages. To get decent exit multiples, late-stage funds might seek to invest at even lower valuations. Once the IPO and M&A market “wakes up,” we might see the trend change.

The IPO and M&A market didn't see the improvement I anticipated last year, and I think it will remain challenging. Buyers will be very sober when making an offer in 2024, and many deals may be postponed as founders wait for better terms.

However, some startups still have the chance to go public. One of the most probable candidates is Klarna. It has been preparing for an IPO for a while, undergoing legal and administrative preparations. Additionally, it became profitable in Q3 2023, which may indicate its readiness to go public.

Shein could also go public in 2024. Shein's sales surged over 40%, reaching $24 billion in the first three quarters of 2023, potentially making it the world's largest e-commerce fashion brand by revenue.

Stripe is another promising candidate. The company has been contemplating an IPO for a year now.

Limited partners are now a bit more concerned than before about the liquidity. They understand the situation but ask more questions about market outlook and portfolio performance.

If exits remain on hold, there may be a revival in the secondary share market. Early-stage funds may start selling shares in startups more frequently to demonstrate liquidity to their LPs and generate returns.

Another trend I'm overseeing: Generalist funds are losing favor in the eyes of LPs as more and more of them are pushing VC firms to become more focused on a particular geography, industry or other factors.

At F1V, although we're open to investing in various industries, each member of the investment team has their focus. Mine includes enterprise automation, healthtech, and construction tech.

Everything happening in AI right now started just about a year ago. It's a short time to say that the current excitement about AI has ended. The hype is still going strong, and the value of AI startups is still higher than companies in other industries.

People won't stop talking about AI, and in the coming year, we'll see more AI tools working with videos. These tools won't just make avatars (like what’s happening right now) but will also generate videos based on text prompts, which can be used in the movie industry or advertising.

Also, no-code services will merge closely with what AI can do, people will be able to create their own software without any coding knowledge. Every industry will change as literally everyone will be able to make an AI-powered app/software.

In other words, we will have to live with the AI bubble for a while.

Many AI startups, even those backed by investors in 2023, will close. In particular, this concerns companies that develop "wrappers" for established algorithms or those that use AI to enhance features, rather than building products for everyday use.

In 2024, there will be many write-offs; during due diligence, there will be much closer attention to the startups’ defensibility.

Despite the unhealthy economic climate, our strategy remains steady, much like it was in 2023, when we closed about 10 deals, mainly at seed and pre-seed stages. In 2024, we will continue investing in a similar number of companies as we did last year.

We welcome promising founders of early-stage startups to read more about Flyer One Ventures and pitch us at go@flyerone.vc.

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