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What the slow pace of venture capital deals in Q1 2024 means for startups

Investors continue to take their time evaluating investment opportunities as more companies come to market.

  • VC-backed companies raised $32.8b in Q1 2024, a slight increase from Q4 2023. Approximately 20% of funds invested went to AI-related companies.
  • Fund formation is down from recent highs, but it is returning to historical norms.
  • Improving IPO market signals a gradual improvement in the VC ecosystem. Successful exits would return capital to limited partners.

While the market continues its retreat from the highs of 2021, funding for VC-backed companies saw an uptick in Q1 2024, increasing 12% from the $29.4b raised in Q4 2023. Deal volume saw its lowest levels since 2012, as investors scrutinize value propositions and look for clear paths to growth from founders. The only exception to that rule are companies in the artificial intelligence (AI) space. AI-related companies raised $5.6b in Q1, which accounted for 17% of VC investment this quarter. Prior to last year, AI represented 10% of investment on average between 2013–22.

VC fund formation in 2024 has begun at a more subdued pace than the recent peak levels. In Q1 2024, VC funds raised just under $10b. This level of fund formation is returning closer to historical averages seen before the record-breaking periods, with a 10-year average of $41bb annually.

US venture capital investment trends over time

Our interactive database provides a historical analysis of US VC trends. Analyze by sector, date range, region, deal stage, and more.

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As of today, there are 52,000 VC-backed companies in the US startup ecosystem. Since 2022, half of those companies have raised venture capital, of which 3,000 of them raised $20m and above, while 10,600 of all companies that have raised VC since 2022 were seed and Series A rounds. With a large number of new company formations in recent years, we expect that a substantial population of companies will need to fundraise again and demonstrate a compelling case for additional capital. This builds the case for an expected uptick in venture activity in the coming months and years.

Mega-round financing

Mega-rounds continued to hold steady from the levels of 2023 as most investors continue to be cautious writing substantial checks. On the positive side, significant amounts of dry powder remain on the sidelines, ready to fund companies with strong value propositions. In addition, an increasingly optimistic outlook for the US IPO market could help to break the logjam, returning capital to investors who may want to channel those funds back to startups.

Private equity firms continue to show increasing interest in the VC market, with private equity participating in three of the top ten deals.


For the first time since Q4 2022, health care surpassed information technology, securing the top spot due to a significant deal for a radiology health services company. Energy and utilities also surged in Q1 2024, with a major deal for a sustainable infrastructure company, but business and financial services held onto third place. Consumer services had a strong quarter, buoyed by a large deal for a gaming company based in North Carolina.


The San Francisco Bay Area held onto first place, securing 36% of total VC investment in Q1. New York followed up on a weaker performance in Q4 2023, recording 14% to reclaim the second spot, followed by Boston and Los Angeles, which each accounted for 7% of total VC dollars. Five biotech deals over $100m in March alone helped to boost San Diego into the top five.

Overall outlook for Q1 2024

While the broader macroeconomic backdrop seems to be stabilizing, that has not translated to the venture capital ecosystem. Startups continue to be challenged by the valuation overhang. That takes time to work through, and it’s painful, especially for founders who have never been through a down cycle like this, which hasn’t happened in over 20 years.


As mentioned above, we anticipate that many of today’s startups will need to begin fundraising again, after being out of the market the last couple of years. We expect this will translate to a pickup in VC activity. Given the environment, founders, especially those already in the venture pipeline, will need to convey a compelling growth story and market-disrupting technology to compete for investment.


On the bright side, the US economy does appear to be executing a soft landing. And as we noted earlier, the IPO market is improving after a few challenging years. This market will reward companies that have attracted experienced team members, built solid internal controls and demonstrated a path to profitability. Companies with an exciting value proposition, especially in AI, will continue to get attention and investor dollars. A pickup in public market activity will recycle capital back into the ecosystem and provide support to the companies we expect will be fundraising again in the coming months.


It’s too soon to determine whether the quarter-over-quarter increase in VC activity in Q1 2024 signals that the market has finally hit bottom. Investors will continue to be selective when deciding which startups to fund. While we don’t expect a return to the heady days of 2020–22, continued improvement in the public markets may encourage more investment. 

Views expressed in this column are those of the author and do not necessarily represent the views of Ernst & Young LLP or other members of the global EY organization.


While the jury is still out, the venture capital market may be hitting bottom, recording a slight increase in Q1 2024 over Q4 2023. An improving IPO market may help the overall VC ecosystem, returning capital to limited partners who may look for new opportunities.

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