Over the past five years, venture capital (VC) deal flow has experienced significant fluctuations, influenced by economic conditions, technological advancements, and shifting investor priorities. In this article we try to go over some of the larger trends so you can get a sense for the VC funding landscape.  Key trends include:

1. Peak and Decline in Investment Activity (2021-24):

• 2021 Surge: VC investments reached unprecedented levels in 2021, with global funding peaking at $185.9 billion in Q4, driven by favorable economic conditions and a surge in tech startups. [1] 
  
• Subsequent Decline: Following the 2021 peak, there was a notable downturn. By Q4 2023, global VC investment had decreased to approximately $73 billion, reflecting a more cautious investment environment. [2]

• AI-Driven Growth in 2024: In 2024, the VC landscape rebounded, with total investments increasing by nearly 30% year-over-year to a record $209 billion. Artificial intelligence (AI) startups were pivotal in this resurgence, securing 46.4% of the total U.S. VC funding. [3]
  

2. Shift in Investment Stages:

• Early-Stage Focus: There has been a notable increase in seed and early-stage investments, indicating renewed confidence in emerging startups. Seed deal sizes increased by 35%, while early-stage investments grew by 14% in 2024. [4]
  
• Late-Stage Caution: Conversely, late-stage funding experienced a 20% decline year-over-year, suggesting increased selectivity among investors and a focus on startups with clear growth trajectories. [4]

3. Geographic Concentration:

• U.S. Leadership: The United States maintained its dominance in the VC sector, accounting for 57% of global venture funding in 2024, with Silicon Valley alone representing half of that share. [5]
  
• Regional Variations: While North America saw a 50% rise in deal values in Q2 2024, regions like Asia-Pacific and Africa experienced declines of 19% and 80%, respectively, indicating uneven recovery patterns. [6]

4. Evolution of Deal Sizes and Valuations:

• Increased Deal Sizes: Despite a decline in deal volume, the average deal size grew, with 2024 averaging $13.9 million, up from $12 million in 2023. This trend reflects a flight to quality, with investors concentrating on more promising ventures. [7]
• Valuation Adjustments: Median pre-money valuations for early and later-stage rounds declined by 20% and 17%, respectively, from 2022 to 2023, indicating a market correction and more conservative valuation approaches.

5. Impact on number of VC Firms

The number of active venture capital (VC) firms in the United States has been declining in recent years. After peaking at 8,315 in 2021, the count dropped to 6,175 by 2024—a reduction of more than 25%. [9]

This decline is largely due to risk-averse financial institutions concentrating their investments on the largest Silicon Valley firms, making it challenging for smaller VC firms to secure funding. In 2024, over half of the $71 billion raised by U.S. venture capitalists was secured by just nine firms, including General Catalyst, Andreessen Horowitz, Iconiq Growth, and Thrive Capital. 

The slowdown in initial public offerings (IPOs) and takeovers has extended the time it takes for investors to see returns, further contributing to this trend. As a result, limited partners now prefer established firms with proven track records, leaving newer or smaller firms struggling to survive. Industry experts estimate that 30-50% of VC firms may face extinction if returns do not improve.

As of 2024, the top venture capital (VC) firms in the United States, based on assets under management (AUM), are [10]:

1. Andreessen Horowitz: Headquartered in Menlo Park, California, Andreessen Horowitz manages approximately $42 billion in assets.
   
2. Sequoia Capital: Also based in Menlo Park, Sequoia Capital oversees around $28.3 billion in assets.
3. Dragoneer Investment Group: Located in San Francisco, California, Dragoneer manages about $24.9 billion in assets.
4. New Enterprise Associates (NEA): With headquarters in Chevy Chase, Maryland, NEA has approximately $17.8 billion in assets under management.
5. Khosla Ventures: Based in Menlo Park, California, Khosla Ventures manages around $14 billion in assets.

These firms have been instrumental in funding and nurturing numerous successful startups across various industries, significantly contributing to the growth and innovation within the U.S. startup ecosystem.

References:

[1] Development Corporate

[2]  Statista

[3] Reuters 

[4] GoingVC | Venture Capital Ecosystem

[5] Barron’s

[6]  WIPO

[7]  CB Insights

[8] Welcome to WilmerHale

[9] ft.com

[10] Wikipedia