Preqin research analysts have concluded that venture capital assets had a turbulent 2023. The exit environment, asset valuations and interest rates are the factors shaping the VC landscape for investors in 2024, according to the research and data outfit Preqin.

One of the main challenges for fund managers is the difficulty of raising capital among shifting investor sentiment. But pricing dislocation may reveal long-term opportunities for investors strategically positioned to seize them.

An investor survey carried out by Preqin in November 2023 looked at return expectations for portfolios in venture capital in 2022-2023. The results showed that 38% of Preqin clients are optimistic that VC portfolios will perform better in 2024.

Here are some takeaways from Preqin’s 2024 global venture capital report, published in December 2023.

Fundraising sees a downturn

VC fundraising continued its slowdown, affecting all regions. This was especially seen in expansion/late-stage funds. As of Q3 2023, 783 funds closed, raising $85.7bn, marking a 53.2% decrease from 2022 and projected to be the lowest since 2015. The combination of decreased exits and a pessimistic outlook from investors in late 2022 has led to diminished capital inflow into VC.

That being said, “For Luxembourg, we see that the fundraising has been doing relatively well and [is] relatively resilient,” Angela Lai, VP, head of APAC and valuations, research insights at Preqin, told Delano.

The earlier, the better for dealmakers

Lower fundraising has affected deal activity. Early-stage deals outperformed late-stage deals, both in terms of the number of deals and the deal value. In 2023, there were 14,363 deals with an aggregate deal value of $220.7bn, marking a 35.1% decrease compared to 2022.

Preqin analysis showed that the earlier the stage, the better the deal numbers and values held up. North America experienced a greater decline than Europe and Asia-Pacific (APAC) countries.

“Basically, the sentiment is very weak. And that’s already being reflected in all the data that we see in fundraising, in deals and in the valuation,” Lai commented.

Healthcare trade sales stand out

Healthcare emerged as a key sector, constituting 47.9% of the aggregate exit value, with trade sales being the predominant exit strategy at 66.1%. Exits in the first three quarters of 2023 totalled 1,328, amounting to $162.2bn, a notable decrease from the 1,647 exits recorded during the same period in 2022. North America remained the dominant region, accounting for 68.2% of aggregate exit value.

VC allocations unchanged for 2024

Preqin’s investor survey examined the longer-term prospects for allocations to venture capital. Results showed that 50% of respondents plan to maintain their venture capital allocation unchanged in 2024.

In terms of “near-term outlook, venture capital probably is going to take a while to recover,” commented Lai. “The strength is going to be in private equity rather than venture capital.”

Find Preqin’s full report here.