The venture capital (VC Megadeals) landscape in 2024 presents a mix of challenges and opportunities. Ask any venture capitalist if we’re still in a VC bear market, and they’ll likely argue that the market has stabilized and that funding is flowing steadily for promising companies. However, the current environment can be complex for those raising funds, as the shadow of down rounds still looms large over late-stage startups. This article delves into the evolving dynamics of venture capital, including the latest data on down rounds, the resurgence of megadeals, and sector-specific trends that are shaping the market.
Down Rounds Still Loom Large in Late 2024
While many in the VC world are optimistic about the market’s recovery, stories of startups struggling to raise capital persist. A key indicator of this struggle is the prevalence of down rounds—situations where startups raise money at a valuation lower than their previous round. According to Aumni’s Venture Beacon report, nearly 39% of late-stage deals (Series B and beyond) in the first half of 2024 were down rounds. This marks a challenging period for startups, particularly at the Series C stage and beyond, where investors are more cautious.
Down rounds can be tough for founders to accept, as they signal a decrease in the company’s valuation and can dilute ownership. Nonetheless, for many startups, raising a down round is better than running out of capital. It allows them to secure the funds needed to keep growing, even if it means accepting a temporary hit to their valuation.
Stripe’s Valuation Rollercoaster: A Cautionary Tale
Even high-profile companies like Stripe have experienced valuation challenges. In 2021, Stripe’s valuation soared to a staggering $95 billion, making it one of the most valuable private companies. However, as of a secondary transaction in July 2024, Stripe’s valuation stood at around $70 billion, a significant drop from its peak. This example serves as a reminder that even well-established tech giants aren’t immune to the shifting tides of venture capital.
Stripe’s valuation story highlights a broader theme in the current VC market: a recalibration of valuations as investors become more selective and prioritize sustainable growth over aggressive scaling. This shift is affecting not only tech giants but also smaller startups that are looking to raise funds.
Signs of Optimism: A Surge in Megadeals
Despite the caution around valuations, late 2024 has seen a surge in megadeals—funding rounds of $100 million or more. According to Crunchbase, nearly 240 megadeals have been recorded for U.S.-based startups this year, surpassing the 210 deals completed throughout 2023. This uptick in large funding rounds suggests that investors are willing to deploy significant capital, but only for companies they believe have strong growth potential.
Interestingly, these megadeals are not dominated by AI companies, as many might expect. Instead, the top category for these large investments is biotech and healthcare, which accounted for 87 megadeals, compared to just 26 for AI. This trend underscores a shift in investor focus, as they seek out opportunities in sectors with long-term growth prospects and the potential for groundbreaking innovations.
The Role of AI in Healthcare: A Blurring of Categories
Some of the megadeals in the healthcare space involve companies that leverage artificial intelligence for drug discovery and medical research. For instance, Xaira Therapeutics, a company focused on AI-driven drug discovery, raised a massive $1 billion round in April 2024. The round was led by ARCH Venture Partners and Foresite Labs, known for their expertise in biotech, but it also attracted classic Silicon Valley venture capital firms like NEA, Sequoia Capital, and Lightspeed Venture Partners.
Xaira’s example illustrates how the lines between biotech and AI are becoming increasingly blurred. While the company operates within the biotech space, its use of AI technology places it on the radar of investors interested in both sectors. This intersection between AI and healthcare presents a compelling opportunity for venture capitalists looking to back innovative companies with the potential to transform the industry.
Biotech Megadeals: A Consistent Performer in 2024
Beyond the intersection of AI and healthcare, there are plenty of biotech companies securing substantial funding purely for their advancements in drug development. One notable example is Superluminal Medicines, which raised $120 million in a Series A round led by pharmaceutical giant Eli Lilly. While Superluminal uses machine learning to expedite drug discovery, its primary focus is on targeting small molecule receptors on cell membranes—an area of intense interest in the biotech world. This deal attracted tech-focused investors like Insight Partners and NVentures (Nvidia’s venture capital arm), signaling strong cross-industry interest in this field.
Other significant biotech deals include Terray Therapeutics, which secured $120 million in a Series B round, and Judo Bio’s $100 million Series A to focus on treatments for kidney conditions. These deals reflect investor confidence in the biotech sector’s ability to deliver novel therapeutics and address critical healthcare challenges. A new biotech megadeal seems to emerge almost every week, indicating sustained interest from both traditional VCs and strategic investors.
Cybersecurity: A Key Sector for Large Investments
Another sector that has seen robust investment activity in 2024 is cybersecurity. As digital threats continue to evolve, the need for innovative security solutions remains high, attracting significant capital to the industry. So far this year, there have been 16 megadeals in the cybersecurity space, highlighting the sector’s ongoing importance to investors.
Some standout examples include email security startup Kiteworks, which raised $456 million, and data security firm Cyera, which secured $300 million. Meanwhile, cloud security company Wiz made headlines with a $1 billion funding round, underscoring the critical role of cloud security in the modern enterprise. These deals reflect the growing demand for solutions that can help organizations protect sensitive data and manage cybersecurity risks in an increasingly digital world.
Positive Signals for Early-Stage Startups
While much of the focus has been on late-stage megadeals, there are also positive signs for startups at earlier stages. Aumni’s report noted a slight improvement in pre-money valuations for seed and Series A deals in the first half of 2024. This suggests that investors are still interested in backing promising young companies, even as they exercise caution with later-stage valuations.
For early-stage founders, this environment may offer a window of opportunity to secure funding and build relationships with investors. However, it’s essential to have a solid business plan and a clear path to profitability, as investors are no longer willing to fund growth at any cost. Instead, they are looking for startups with strong fundamentals and the ability to scale sustainably over time.
Dealmaking Remains Steady in 2024
Another encouraging sign is the overall pace of dealmaking in 2024, which appears to be on par with 2023. According to the Q3 PitchBook-NVCA Venture Monitor, deal activity in 2024 is expected to reach nearly 16,000 transactions, similar to the levels seen last year. This is particularly notable given the significant slowdown in venture funding following the frenzy of 2020 and 2021, driven by pandemic-related trends and zero interest rate policies (ZIRP).
While dealmaking volumes may not have returned to the peaks of the pandemic years, the stability seen in 2024 suggests a more sustainable pace of investment activity. For founders, this could mean a more predictable funding environment, where investors are willing to engage with startups that demonstrate a clear value proposition and a path to growth.
Looking Ahead: What Founders Should Expect in 2025
As the VC Megadeals venture capital market continues to evolve, founders will need to adapt to the new realities of raising capital. This includes being prepared for the possibility of down rounds, understanding the sectors that are attracting the most investor interest, and aligning their business strategies with the current market dynamics.
For those seeking guidance, events like TechCrunch Disrupt 2024 offer valuable insights. The Builders Stage will feature sessions such as “What You Need to Raise a Series A Today” and “How to Raise in 2025 if You’ve Taken a Flat, Down, or Extension Round.” These discussions can provide founders with practical advice on navigating the challenges of fundraising in today’s market.
Conclusion: A Mixed Bag of Challenges and Opportunities
The venture capital market in late 2024 is far from homogeneous. While down rounds remain a significant concern, the surge in megadeals and steady dealmaking pace suggest that investors are still eager to back the right opportunities. Sectors like biotech, healthcare, and cybersecurity are attracting significant attention, offering a roadmap for where investors see the greatest potential for innovation and growth.
For founders, this means that while raising capital may not be as straightforward as it was during the boom years, opportunities still exist for those who can demonstrate their value and resilience. As we move into 2025, adapting to these market dynamics will be key for startups looking to thrive in a competitive and evolving landscape.
