TLDR
A look back at how the Venture Capital and Startup space fared in the first half of 2024
IPOs
We’ve spoken at length about some of the bigger named IPOs of both 2023 (Klaviyo, Arm, Instacart) and 2024 (Reddit, Astera Labs, Rubrik, Ibotta). There’s no doubt that Venture Backed Startups have seen more IPO activity in the past 12 months than the previous year, as Q2’24 (51) marked the most IPOs in a quarter since Q1’22 (80).
That being said, the IPO market as a whole is still barely chugging along compared to previous highs. As shown by the graph below:
Overall, since 2000 there have been on average 247 IPOs per year or 214 if you remove the 1,035 outlier in 2021.
With 94 IPOs in the first half, we expect 2024 to be below that 25 year average, but higher than 2022 and 2023.
We found it interesting to look back at both the Dot Com crash of 2000 and the 2008 financial crisis. Following 397 IPOs in 2000, the IPO market didn’t go above 200 offerings until 2004 which featured 314 IPOs. Similarly, in 2007 there were 268 IPOs followed by back to back years under 100. The IPO market didn’t again hit the 200 mark until 251 companies debuted in 2013.
This is all to show that after such a large boom in public offerings, it will take some time before companies start going public again in masses. It took 3 years following the Dot Com crash and 5 years following the 2008 crisis for IPOs to cross above the 25 year average again.
Both of these moments represent more serious downturns in both public equities and the economy compared to today. However, while public markets have shown resilience in 2024, the notable downtick from 1,000 IPOs in 2021 suggests that the Venture Capital / Startup bubble was just as serious.
all IPO data as per stockanalysis.com
Quickly, regarding M&As: Per PWC, global M&A activity fell 30% in the first half of 2024, relative to the same period in 2023. However, the total deal value rose by 5% (29% in the US). Fewer deals are getting done, but some large AI and energy deals skewed the total value higher.
Most of the deal activity was in public energy companies, but some semi-recent IPOs were acquired this year and taken private. Squarespace (acquired by Primera) and Hashicorp (acquired by IBM) provide measurable comps for the current crop of Unicorns. Both companies were acquired for less than their 2021 valuation highs. This highlights the difficulty many startups face today: raising money at a lower valuation than they received in 2021 or growing until they can command a higher valuation. Just look at Cathie Wood’s ARKK, which is down more than 70% from its Feb 2021 high and holds a number of companies that IPO’ed during the bull run.
One major startup, AuditBoard, was acquired by Hg for more than $3B. AuditBoard, who crossed $200M in ARR in February, had not raised money since late 2019 and was reportedly profitable. AuditBoard is definitely an outlier given they didn’t raise at a massive valuation, but shows that strong fundamentals can still lead to outsized exit events.
Notably, the liquidity crunch that has been going on in the industry is starting to lead to some fire sales at deep discounts as well, as companies find themselves no longer able to continue their operations.
Investments
Venture investing has also been tepid in 2024, but similar to M&A, a few prominent AI deals led to a big jump in May. Per Crunchbase, VCs invested $31B in May, the 3rd highest total since June of 2022. Note that $6B of this went to Elon Musk’s xAI, with other AI companies like Coreweave and Scale receiving $1B+ funding rounds as well. Overall, Crunchbase says 40% of all VC funding went to AI companies in May. For now, it pays to be in AI!
Touching back quickly on the state of public markets, below you can see the year-to-date performance of 3 indices.
1) The SP500 is up thanks to the performance of the Magnificent 7 and AI.
2) The Russell 2000 is essentially flat and likely a better representation of reality.
3) ARKK is down YTD and represents a bundle of stocks more similar to the crop of Unicorn startups that hope to IPO in the coming months/years.
Why this matters: Given the current economic situation and the all-time highs being experienced by the SP500, we expect IPO activity to continue trending upward in the second half of 2024 and into 2025, especially when interest rates eventually fall.
Scale is a prime example of a company that had not raised money since the highs of 2021. Their massive up-round is a great sign for startups. We expect more companies that have not raised in multiple years to take on funding in the next 6 months. It will be interesting to see how many are able to meet or exceed their previous valuations, especially companies outside of the AI trend.
