Venture Pulse Q2 2024
The Venture Pulse report provides insights around trends, opportunities, and challenges in the U.S. venture capital market.
VC investment in the US rose to $55.6 billion — the highest level since Q2’22 — driven in large part by major mega-deals in the AI space, including an $8.6 billion raise by cloud AI provider CoreWeave and a $6 billion raise by AI systems company xAI.
VC investors starting to unfreeze funds
During Q2’24, VC investors in the US showed an increasing willingness to make investments, spurred in part by growing pressure from their LPs to allocate funds. Despite continued uncertainty as to whether the US will cut its interest rates, VC investors appeared more confident in the performance of the US market this quarter, particularly compared to other regions of the world. This likely contributed to the strong rise in $100 million+ deals in the US during Q2’24. VC investors in the US also showed greater interest in Series B and Series C deals this quarter as they worked to balance their portfolios in advance of an eventual reopening of the IPO market and the potential exits of later stage companies within their existing portfolios.
We are seeing some very big deals around the world, notably in the $100 million+ range. AI is driving a big part of this as FOMO (fear of missing out) has caught on to some degree. But we are also seeing VC investors putting more money into existing investments who have IPO prospects better than several months ago -— particularly startups that have succeeded with navigating the path to profitability. So some of the fundings we are seeing now are investors giving companies the funds they need to get to the IPO finish line — whether in 2025 or 2026.
Conor Moore
Global Head, KPMG Private Enterprise
AI very frothy area of investment in the US
AI was the clear winner with respect to VC investment in the US during Q2’24, attracting all sizes of funding rounds, including several of the largest deals of the quarter; in addition to CoreWeave and xAI, the US saw $1 billion investments in data-focused company Scale AI and AI-powered drug discovery company Xaira Therapeutics. Valuations within the AI space continued to be exceptionally strong compared to other industries, evidenced by the median valuation of AI companies growing significantly in recent quarters. Given some of the big bets being made in the AI space in the US, the fear-of-missing-out (FOMO) was likely a contributor to the strength of VC investment in AI this quarter.
US IPO market sees additional movement in Q2’24
Six-months into 2024, IPO exit value in the US ($28.4 billion) fell just shy of the total amount seen in 2023 ($29.3 billion). Following on the IPOs of social media platform Reddit and AI cloud company Astera Labs in Q1’24, Q2’24 saw additional IPOs by tech marketing firm Ibotta and cybersecurity firm Rubrik. Both companies saw strong initial results, with Rubrik raising $752 million and Ibotta raising approximately $577 million in their April IPOs. These companies have performed reasonably well since their IPOs, which could spur some additional interest in IPOs heading into Q3’24. There are no indications, however, that the IPO door will swing wide open, particularly given the upcoming US presidential election. While both startups and investors are feeling more optimistic about their ability to go public, any major surge in IPO activity will likely come late in Q4’24 or into 2025. M&A exit value in the US was also well ahead of last year’s total at mid-year, but activity remained relatively soft compared to historical norms.
SEC rules spurring interest in cybersecurity
In 2023, the SEC issued new rules that required the rapid reporting of major cybersecurity incidents by public companies; additional guidance related to this reporting was issued in Q2’24.4 The complexities of building the controls needed to capture all cybersecurity incidents and report on them within the timeframes required is helping drive interest and investment in cybersecurity solutions. Cyber threats in general have also risen as threat actors have increasingly looked to leverage AI and automation to drive cyberattacks; this will likely keep the interest of VC investors strong over the next few quarters.
VC investors rewarding the efficiency efforts of startups
For nearly two years, VC investors in the US have put a lot of pressure on the companies within their portfolios to become more efficient — to manage their expenses, to manage their P&L, and to undertake whatever cost-cutting measures were required to extend their operating runway and push out their next funding round. While some companies failed and either ran out of money or got bought out, others succeeded. In Q2’24, VC investors began to reward these efforts, making significant investments in companies that have rationalized their businesses and proven their ability to survive in tumultuous times in order to take them into 2025 or into 2026 if they are preparing for an exit.
Trends to watch for in Q3’24
VC investment in the US is expected to remain relatively steady quarter-over-quarter, with the number of $100 million+ mega-deals continuing to grow. AI will likely remain a big ticket for VC investors the US, with increasing interest in industry-specific AI solutions. Given the ongoing focus on energy and cleantech in the US, VC investors will likely also show increasing interest in solutions aimed at reducing the energy requirements of the servers and infrastructure underpinning AI solutions.
Fundraising activity by VCs will likely remain sluggish heading into the second half of the year, except perhaps for funds focused specifically on the AI space; as exit activity increases, it will likely catalyze fundraising activity in subsequent quarters.
M&A activity could rise in Q3’24 as struggling companies look for buyers and corporates and PE firms look for deals.
When it comes to AI, the global tech giants are really reacting quickly to what’s happening in the market. They’ve made critical decisions, they’ve closed down parts of their business that they were spending money on and rechanneled all that money into AI because they can’t lose the race to be the first to land and then to expand. And that’s why the deals we’re seeing globally are so big — because you need to have the capital to move quickly, and you’ve got to make those bold decisions as to where you’re going to commit large amounts of money to get what you need.
Francois Chadwick
Partner, KPMG Private Enterprise
Key insights from Venture Pulse Q2 2024
In the U.S. in Q2’24
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Venture Pulse Q2 2024
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