What will 2024 bring for Venture Capital? The past two years were all about cutting burn, extending runway, and improving business fundamentals. Those startup companies who did not merely just wait for the storm but instead rolled up their sleeves to reset, refocus, and reprioritize, now find themselves in a position of strength with options. This year will bring an investor friendly deal making environment, smaller fund sizes, the return of the IPO, emergence of big AI and much more, says Jeff Ransdell founder of Fuel Venture Capital, a $700 million VC firm in Miami which counts 33 companies in its portfolio. Jeff is the former Managing Director of Bank of America Merrill Lynch, where he oversaw more than $130 billion of global private client investment assets, a P&L of $2 billion, and over 2,000 employees. Here are Ransdell’s biggest insights for the 2024 VC and investor outlook:
1) What will 2024 bring for investors?
After two years of significant decline, VC investments will level out in 2024. Against the backdrop of ample dry powder from the blistering fundraising in 2021 and 2022, the best companies will have no problem attracting capital at premium valuations. On the other hand, companies with diminished or expired cash runways and no sign of profitability will face down round valuations or a risk of bankruptcy. At Fuel Venture Capital, we have been diligently assisting our founders in adapting to the new era and crafting tailored playbooks for them to execute. We are proud to say that within only 12 months, our portfolio companies have achieved significant advancements across multiple metrics from growth, to unit economics, and profitability. On the investment side, our experience throughout many economic cycles taught us that this is the best time to invest in Venture Capital as Warren Buffet has said “ Be greedy when others are fearful” . Taking advantage of the investor friendly environment, Fuel has continued to make opportunistic investments especially in outperforming companies at attractive terms and valuation for our investors. This shall continue in 2024.
2) Do you think fund sizes will get bigger or smaller?
Due to the lack of liquidity, there is not much dollar circulation into new VC funds. In addition, during periods of economic uncertainty, LPs are more inclined to invest their capital in less-risky asset classes to maintain flexibility and respond to changing financial conditions. As things are clearing up in 2024 with cautious optimism, the new year should bring a slight increase in total VC fundraising, making it stronger than 2023 but comparable with 2020 figures. However, the average fund size will decline and fewer billion dollar funds will be closed. It’s really the natural evolution here.
3) AI will obviously be a big trend but will we see an overall shift in investing?
We will see the drivers of innovation shift from mobile and cloud computing to data and profound advances in AI. Despite the incredible advancement in LLMs, it’s unclear if there’s enough market pull from consumers and enterprises to justify all the dollars going into the sector. Therefore, we expect to see the reckoning of first-wave generative AI in 2024. The companies that raised money at inflated valuations but only had ideas and no real revenue or business model will pivot into solving a more meaningful, business problem.
4) What about VR – will this be on the tails of AI?
2024 will be an extraordinary year with high impact headsets: Quest 3 and Quest 3 Lite at a lower price range and Apple Vision Pro at a higher price range. Quest 3 will drive the VR’s proliferation while Vision Pro will drive its recognition and sophistication. In addition, the rollout of 5G networks will significantly enhance AR and VR experiences by reducing latency and streaming high-quality content without interruption. This will unlock new possibilities for real-time AR and VR application outside of gaming and attract significant VR funding. We are a lead investor in in a groundbreaking VR company called AexLabs based in Miami, which has developed the only First Person Shooter game in VR that provides a deeply immersive experience,
5) Will the Fintech ride keep going?
Following the inflated valuations seen during 2021 and the fintech winter in the past 18 months, this coming year will see leaner and more resilient fintech companies. On the tech side, those companies will leverage the emergence of Open Banking, Embedded Fintech, and Generative AI to innovate and thrive. On the business side, scalability and robust unit economics, even in the absence of rapid growth, will be the driving factor in 2024. We are lucky to have some really great fintech companies such as Novopayment, Recargapay, Curve, and Taxfyle all in our portfolio. But only the strong will survive.
6) IPO’s have struggled to work or get off the ground in recent years. Will this be the year of the IPO comeback?
I do expect a comeback in IPOs later in 2024 thanks to positive economics and market signals at the end of 2023. First, the US economy has been performing better than expected, thus reducing the expectations that the economy will fall into a recession. The Fed has yet to raise rates since July 2023 and has signaled that they will implement rate cuts in 2024. The leading stock market indices, the S&P 500 and Nasdaq, have delivered decent returns for the year of 25% and 43% respectively compared to last year’s decline of 20% and 33% respectively. Market volatility is also on a downward trend, which tends to foster a more stable and favorable market environment and attracts both issuers and investors. According to CB Insights’ analysis, which considers funding, valuation, employee count, and other factors, there are currently 257 venture-backed companies that seem ready to make their debut on the stock market in the next 12 to 18 months.
7) What’s your message for investors for 2024?
The 2000 downturn lasted approximately three years. The 2008 downturn was about 14 months in the technology sector. As for the current downturn, it started around Q1 2022, placing us at the cusp of two years in. Winning companies will want to or have already shifted to “a play to win strategy”, directing them to become the first to take steps forward and to stay several steps ahead of the competition. This early advantage, even by a few months, can compound over weeks and months, eventually leading to a lasting competitive advantage.
