The private equity (PE) and venture capital (VC) industry has faced challenges in 2024 with
reduced levels of capital returning to firms. Despite some optimism and resilience, the
slowdown in deal activity and exits has impacted the ability of PE and VC firms to return capital
to their investors.

Venture Capital Slowdown

The slowdown in VC deal activity, which began in Q3 2022, has persisted into Q1 2024. In the
first quarter, $36.6 billion was invested across 3,925 deals, comparable to the levels seen in
2023[4]. Factors contributing to this slowdown include high inflation, uncertainty about future
interest rate cuts, and geopolitical fragility.

Exits have been a significant issue for VC firms. Q1 2024 saw exit values of $18.4 billion, only
slightly better than most quarters in 2023. The lack of exits has particularly affected unicorn
companies and their investors, with an average holding period exceeding eight years,
increasing liquidity risk[4].

Private Equity Challenges

Private equity activity saw its strongest quarter in two years in Q2 2024, with firms announcing
122 deals valued at $196 billion[5]. However, the valuation gap between sellers and buyers has
been a primary impediment to deal-making since interest rates began rising in mid-2022.

The lack of liquidity and distributions back to limited partners (LPs) has made them cautious
when allocating capital to PE funds[4]. This has contributed to a slowdown in fundraising, with
only 100 VC funds raising $9.3 billion in Q1 2024.

Impact on Limited Partners

Limited partners investing in private markets have been affected by the reduced capital returns.
In a survey, 61% of LPs reported that they will increase their asset allocation to private credit in
2024[1], potentially seeking alternative investment opportunities.

The fundraising outlook for PE firms has slightly improved, with only 15% of general partner
respondents expecting deteriorating conditions in 2024, compared to 45% at the start of 2023.
However, VC firms still have concerns about LPs reducing their allocation to venture capital[1].

Looking Ahead

Despite the challenges, there are some positive signs for the PE and VC industry. Corporate
investors have signaled plans to increase investment in corporate venture capital funds in
2024[3], expanding the pool of available capital. Additionally, PE firms have accumulated a
record $317 billion in dry powder as of Q1 2024, resulting from strong fundraising in 2021-2022
and a slowdown in capital deployment[4].

As the industry navigates this challenging period, entrepreneurs and fund managers will need
to focus on building resilient, profitable companies and managing capital carefully. Those who
can adapt and demonstrate clear paths to growth will be best positioned to attract investment
and succeed in the current environment[3].

Citations:
[1] https://press.spglobal.com/2024-04-29-Private-Equity-and-Venture-Capital-Industry-
Shows-Resilience-and-Optimism-in-2024-Amidst-Shifting-Market-Dynamics-according-to-S-
P-Global-Market-Intelligence-survey
[2] https://www.cambridgeassociates.com/insight/2024-outlook-private-equity-venture-capital/
[3] https://www.ey.com/en_us/insights/growth/venture-capital-market-to-seek-new-floor-
in-2024
[4] https://www.eisneramper.com/insights/financial-services/venture-capital-q1-vc-blog-2024/
[5] https://www.ey.com/en_gl/insights/private-equity/pulse

 

* AI tools were used as a research assistant for this content.