State of Private Markets: Q3 2024

State of Private Markets: Q3 2024

Authors:
Ashley Neville, Kevin Dowd
Read time:
12 minutes
Published date:
November 8, 2024

In the aftermath of the remarkable pandemic bull run of 2021 and early 2022, the venture market has settled into a new normal. The third quarter showed upward trends at the later stages in deal activity and M&As.

Executive summary

When it comes to headline numbers like deals completed and dollars raised, many aspects of the venture capital landscape in Q3 2024 looked familiar.

In the aftermath of the remarkable pandemic bull run of 2021 and early 2022, the venture market has settled into a new normal. For nine straight quarters now, private startups on Carta have raised somewhere between 1,250 and 1,650 new rounds and brought in between $15.7 billion and $23.8 billion in new capital. After the roller-coaster ride of the preceding two years, it’s been a notable stretch of high-level consistency.

But venture dealmaking data from Q3 also shows that much has changed within the startup world’s many nooks and crannies. At the seed stage and Series A, deal activity slumped in Q3. The median valuation at these stages, however, trended up. Raising an early-stage round today is no easy task—but some startups have been able to do so at increasingly high prices.

At later stages, meanwhile, deal activity trended up in Q3. Companies closed 43 new Series D rounds on Carta, the highest quarterly Series D count in more than two years. The number of M&A deals targeting startups also ticked up last quarter, providing welcome opportunities to generate liquidity. After activity plunged during the recent venture slowdown, the late-stage market may be heating back up.

Q3 highlights

Key trends

As time goes by, the anomalous nature of the pandemic venture boom grows more and more apparent.

Startups have so far recorded $20.1 billion in venture capital raised across 1,254 transactions on Carta during Q3, with both of those totals set to rise slightly in the weeks ahead as more companies report funding events. These headline numbers for venture fundraising have now looked fairly similar for the past eight quarters. They’re also fairly similar to where they stood throughout 2018, 2019 and early 2020, in the runup to the venture boom.

If we eliminate the six-quarter stretch of Q1 2021 through Q2 2022, recent trend lines for venture deal counts and dollars raised at different stages look very different. There have still been fluctuations in activity over the past five years, in some cases significant ones. But this image of the market is much more consistent.

More than 20% of all new venture investments on Carta in Q3 were down rounds, the fourth-highest quarterly total dating back to at least the start of 2019. Startups are still grappling with the realities of the widespread valuation reset that began in mid-2022.

During 2021 and early 2022, venture-backed valuations soared to all-time highs after nearly a decade of steady growth. It was rare to see any startup raise new capital at a reduced valuation. But as valuations have undergone a reset in the past two-plus years, some companies have found it difficult to raise capital at the lofty valuations they once attained. Given how the average time interval between priced rounds has also increased in the past two years, many of the companies that raised capital in Q3 were doing so for the first time since valuations began to decline.

The Series B market experienced some positive momentum in Q3, with capital raised climbing by more than 10% compared to the previous quarter. It was the first time in the past five quarters that Series B startups on Carta have topped the $5 billion mark in quarterly fundraising.

The percentage of new venture term sheets that include participating preferred shares has plunged over the past several quarters. Last quarter, it reached a new decade low: Just 4.1% of primary rounds (and 4.2% of bridge rounds) in Q3 involved participating preferred shares.

Conversely, there was a slight increase in Q3 in the percentage of new primary rounds that include cumulative dividends or a liquidation preference higher than 1x. While both participating preferred shares and cumulative dividends are less common than they were at the start of the 2020s, liquidation preferences above 1x have grown more common.

Fundraising and valuations

Back in the first quarter of 2022, the venture funding market was still flying near historic highs. So it makes sense that, since then, deal activity has slowed considerably across the whole of the venture lifecycle. Across every stage of startup life, the number of new startup investments that took place in Q3 was at least 40% lower than in Q1 2022.

The landscape of valuations is less consistent. At both seed and Series C, median valuations were actually higher in Q3 2024 than they were back in Q1 2022. At Series B and Series D, meanwhile, valuations still lag well behind figures from early 2022.

The correlation between median valuation and median round sizes, meanwhile, is still going strong. At most stages, the trend lines for these two statistics have mostly moved in concert over the past three years. At seed, they’re nearly identical.

In most cases, both median valuations and median round sizes are lower than they were in Q1 2022. But there’s significant variation across the stages. Earlier stages have tended to be more resilient than later stages, with the notable exception of Series C, where both median valuations and median deal sizes have spiked so far in 2024.

The median pre-money valuation on primary seed rounds climbed to $14.9 million during Q3, its highest point so far this decade. After previously settling somewhere between $11.5 million and $12.5 million for six consecutive quarters, primary seed valuations have been on the rise in Q2 and Q3.

The median valuation on bridge rounds raised by seed startups also ticked up in Q3, reaching $16.1 million. This was the first time in more than a year that the median seed valuation increased on both primary and bridge rounds in the same quarter.

In terms of activity, it was a slow quarter in the Series A market, with fewer than 400 new transactions logged on Carta for just the third time so far this decade. But many of those companies that were able to raise new capital did so on attractive terms: The median pre-money valuation on primary Series A rounds jumped to $45 million in Q3, the third-highest quarterly figure of the 2020s.

The median valuation on primary Series B rounds was above $100 million in Q3 for the third straight quarter. Previously, it had been below $100 million for five straight quarters. The Series B market seems to have restabilized at a slightly higher level after bottoming out in late 2022 and into 2023.

Series C valuations are soaring. The median pre-money valuation on primary Series C rounds rocketed to $354.5 million in Q3, up 77% from the previous quarter. On bridge rounds raised by Series C startups, the median pre-money valuation rose by 32% in Q3.

The median pre-money valuation on Series D deals plummeted in Q3, falling by 48% from the previous quarter. This continues a recent seesawing in Series D valuations, with the median rising sharply one quarter only to fall sharply the next.

There have been some notable shifts on the dilution landscape in recent quarters. Chief among them, perhaps, is the recent declines in median dilution at both Series B and Series C, both of which reached new lows in Q3. This means that startups are selling off a smaller percentage of their company’s shares to investors when they raise new rounds at these stages.

About 40% of all rounds raised in Q3 by seed and Series A startups were bridge rounds. At both stages, the latest bridge-round rates remain near historic highs, continuing a trend that intensified when the VC funding market began to slow down in 2022.

Last quarter, 170 startups on Carta were the target of M&A transactions. That’s the highest total since the middle of 2022, and it’s the third-highest number dating back to the start of 2019. Total M&A activity targeting startups has now increased in four straight quarters.

Geographical trends

Startups based in California were responsible for more than half of all venture capital raised on Carta over the past 12 months. At 52%, California’s share of all VC raised is nearly five times bigger than the next-busiest state (New York, at about 11%).

Seven different states claim at least 2% of all venture dollars raised in the past 12 months. Three of those states are in the West census region: California, Washington, and Colorado. Three more are in the Northeast: New York, Massachusetts, and New Jersey. That leaves Texas as the only state from either the South or the Midwest that cracks a 2% market share.

Startups from the West have now raised at least 50% of all venture capital on Carta in five consecutive quarters. The region’s share has declined the past two quarters, however, falling from 63% in Q1 2024 to 54% in Q3.

The South regained a notable slice of activity in Q3, as its proportion of all dollars raised climbed to 17%. Previously, the South’s share of the market had been declining steadily for a year and a half. Both the Northeast and Midwest have also gained some ground in the past two quarters.

The Bay Area has heated back up in 2024, with startups raising somewhere between $7.5 billion and $7.8 billion in new capital each of the past three quarters. This new normal is significantly higher than the sorts of fundraising totals the region had seen in the previous six quarters.

Overall, the SaaS, pharma/biotech, and hardware industries are responsible for more than 70% of all venture dollars raised in the Bay Area.

Los Angeles is the only one of the five metro areas included in this report where SaaS is not the most popular sector for venture funding. Instead, hardware takes the top spot, with $2 billion in venture dollars raised over the past 12 months—nearly a third of all fundraising.