Venture capital (VC) investors in the United States are exercising caution in dealmaking as economic uncertainty continues to loom, according to a PitchBook-NVCA report released Thursday. This trend highlights the ongoing challenges within the VC industry, even as public markets experience a rally.
The report indicates that approximately $37.5 billion in deals were completed in the third quarter, which ended on September 30. This figure reflects a substantial decline of nearly 32% compared to the previous quarter.
Limited liquidity has compelled investors to negotiate tougher terms for startups, leading many companies to delay funding until market conditions show improvement. Despite this slowdown, the report emphasizes that artificial intelligence companies are currently commanding the most attention within the venture capital space.
While the VC market faces headwinds, there is cautious optimism that recent interest rate cuts by the Federal Reserve may stimulate activity in the sector. As Emily Zheng, a VC analyst at PitchBook, noted, “Though 50 basis points won't be enough to jumpstart venture, it is a step in the right direction.”
Moreover, a revival in the IPO market could provide additional momentum for VC deals by offering investors more avenues to exit their investments profitably.
In this uncertain climate, leading startups like Stripe, OpenAI, and SpaceX are opting to remain private for extended periods. Instead of pursuing public listings, they are providing liquidity to employees through secondary share sales. Zheng commented, “Secondaries are the best of both worlds. Companies can stay private for longer and investors that want liquidity can get it.”
This rising preference for private assets may also be motivating some companies to postpone their IPOs, particularly if they can secure sufficient funds from private market investors.
As the market evolves, there is a growing belief that the democratization of investment opportunities in the private sector is on the horizon. Howe Ng, head of analytics and investment solutions at private marketplace Forge Global, stated, “The democratization is going to come. The private market will continue to open, and this new asset class is here to stay.”
