Assessing VC optimism for 2024

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The venture capital (VC) landscape faced a range of challenges in 2023 with rising interest rates, higher inflation, and recession fears slowing dealmaking. However, with market conditions steadying, change appears to be on the horizon.

Research from our 2024 Private capital investment predictions report concurs, showing that 89% of investors anticipate closing the same or more deals this year. To discuss what Affinity’s survey of 700+ dealmakers reveals about sentiment for the year ahead and how VC firms are adapting their strategies, we’re speaking with three leaders in the VC space.

Join us on January 23rd at 8:30 AM PT for a panel discussion, Trending up? VC predictions with 3 top firms, featuring:

Sophie Winwood, Operating Partner at Foxe Capital
Jesse Bloom, Partner at SaaS Ventures
Markus Bohl, Managing Director, Europe at Intel Ignite

Here’s a preview of what to expect during the discussion.

Navigating liquidity challenges

In 2023, the rising cost of capital meant that Limited Partners (LPs) were drawn to other asset classes, like real estate and private credit. LPs who continued to invest in the VC market were more selective about their deals, which further challenged liquidity.

As Sophie Winwood puts it, “There are limited, if any, new LPs coming into the space given the state of the venture capital market. Capital is all coming from existing LPs, and those LPs are taking a lot longer [to make decisions]—there’s literally no urgency on their side. They don’t need to make a decision in a rush. They really do [their] diligence.”

A cautiously optimistic outlook

However, with cooling inflation and expectations for interest rate cuts this year, investor sentiment is looking up. Almost 90% of investors expect to do the same or more deals this year, compared to 69% who thought they would be doing the same or less deals in 2023. When asked about their fundraising outlook for 2024, 55% of our survey respondents anticipate increased opportunities to raise a fund compared to 2023.

Jesse Bloom spoke to the inevitability of a rebound in the market, but sounded a note of caution on how soon it might occur: “We have been experiencing an industry contraction for two years, and it may take more time to consolidate around which managers survive and at what size, but then the cycle will rebound as cycles always have.”

To dive deeper into Bloom’s insights on when and how the market will recover, save your spot for the webinar.

Markus Bohl also anticipates a level of optimism this year, but foresees more selectivity: “2024, I think, is going to see a slightly improved environment for private investing. I think it will still be—or even become more—selective than it was before. So what we’ll see is that really good companies with good [intellectual property], strong technology, and strong value propositions will get deals and will get funded.”

The tech upgrade imperative

In an environment where LPs are being more selective and VCs are taking longer to research their deals (an increase of 10 hours in just a year), technology is a crucial ally. Our survey shows that 77% of firms use four or more data sources to research deals, with around 30% of firms using seven or more sources.

To counter the time-intensive deal sourcing process, investors are turning to tools—particularly AI tools—that can automate and streamline processes.

Winwood emphasizes the importance of building a robust tech stack: “One of the things we’ve seen is the increase in the amount of data people are using, and the amount of time it takes to research. So having a more valuable tech stack and improving tech stack from an operational standpoint [is key].”

Focusing on relationships for a competitive edge

With AI tools and enriched data on track to become ubiquitous, VC firms need to look elsewhere to differentiate themselves. Winwood notes, “If we all have the same data and the same tools, then how do you win deals? It’s [with] relationships and brand trust.”

‍Our research shows that VC firms are focusing more on networking and managing their relationships to snap up high-quality deals:

Network building was named the top priority for 2024 among investors, followed by deal sourcing and deal management
33% of dealmakers expect more than 50% of their deals to come from their existing networks

Having a strong network doesn’t just help VCs access the best deals. Winwood also notes the importance of relationship-building for firms looking to raise a fund in 2024: “It’s more of treating the LPs like a partner and investor—building that relationship, seeing what you additionally can offer them. LPs come in different shapes and sizes, so if it’s a corporate LP, then contributing to their innovation agenda [is important]. If it’s a financial LP, then it’s just [about] delivering on returns.”

Don’t miss the insights

To learn how you can capitalize on increased deal and fundraising opportunities this year, watch our webinar Trending up? VC predictions with 3 top firms to learn: