SVB – State of the Markets, 1H 2024

SVB's H1 2024 State of the Markets report reveals positive signs of normalization and recovery in the innovation economy. The report highlights that AI was a key driver of VC fundraising and investment in 2023, with 1 in 4 funds closed focusing on this area. Moreover, 67% of US VC-backed tech companies have successfully reduced their net burn rates, indicating their adaptation to the new financial environment. Encouragingly, more than 60% of companies that experienced a down round in 2023 went on to raise another equity round, suggesting that down rounds are not the end of the line. The report predicts that the innovation economy is nearing the end of the most significant contraction since the dot-com bubble, with late-stage tech valuations bottoming out in mid-2023 and subsequently showing a positive trend. Seed activity remains resilient, and investment has stabilized, even if it is not experiencing significant growth. However, the report acknowledges that the impact of the investment downturn is yet to be fully felt, and companies are now facing the need to raise funding. Companies unable to raise funds are finding it challenging to secure buyers for soft landing M&A deals. Nevertheless, SVB is cautiously optimistic about the future and anticipates increased Series A tech deal activity in 2024, with a robust cohort of seed stage companies returning to the market. The recent rebound in public markets, including the significant increase in the Renaissance Capital IPO index in 2023, may create opportunities for IPOs from the largest cohort of unicorns the innovation economy has ever seen. The report also notes a shift in VC investor focus towards highly scalable businesses that can disrupt large markets, as capital becomes scarcer. Investors are increasingly looking for clear paths to profitability and are more inclined to support startups that reach profitability earlier and are less reliant on late-stage capital. This shift is expected to result in earlier exits for startups, potentially leaving more value for public markets. Despite the challenges, SVB remains optimistic about the innovation and resilience demonstrated by companies in the face of adversity.