Greetings – I’m Saxon Baum, a partner at Florida Funders, recognized as the most active venture capital firm in the Southeast. In this quarterly briefing, I’ll review the data from the first quarter of 2024, offering insights into the venture capital climate and its impact on our strategic decisions at Florida Funders. Our investment strategy is always informed by what’s happening in the market, using data like this from Pitchbook to respond to changing conditions with agility.

Current State of the Venture Capital Market

As of the first quarter 2024, the venture capital environment has significantly favored investors. With diminished competition among investors, many have introduced safeguarding financial terms in their agreements, such as guaranteed dividends and return multiples. In short, startups are eager to find the right investors and willing to give their investments greater security to attract them. Investors who don’t take advantage of these highly favorable terms will miss out.

This trend is fueled by heightened competition for funding on the part of companies. The ratio of demand to supply for growth-stage venture capital has escalated to 2.2 times, the highest level in at least a decade, accentuating the gap between the capital requirements of companies and the investment community’s readiness to provide necessary funds.

The current investor-friendly environment allows investors to become more selective with deals, only choosing companies that perfectly fit their portfolios. The imbalance in capital availability will persist until market dynamics encourage crossover funds to re-engage with the venture sector.

Shift Toward Profitability

The ongoing economic pressures have made it imperative for businesses to prioritize profitability alongside growth – because great ideas and game-changing companies can only grow if built on a viable, profitable business model.

According to Pitchbook’s capital demand/supply analysis as of early 2024, venture-growth-stage startups are receiving just $1.00 for every $2.20 they require. By showing movement toward profit while growing, startups can keep investors engaged with evidence of capital efficiency to sustain their operations.

Early-Stage Investment Trends

At the outset of 2024, pre-seed and seed stages investments reached $2.6 billion, a 39% decrease from the same quarter last year. We’ve seen a considerable reduction in the number of deals, but we have also seen an increase in the median valuations. Why is this? A likely cause is that only the most promising companies are managing to secure funding under the current challenging conditions, driving the prices up. The first quarter has proven to be a time for unicorns-in-the-making to shine.

IPO Developments

IPO activities are aligning with the projected gradual reopening of the market. The volume in the first quarter shows a marked increase from the past two years, though it’s still modest by historical standards. The current batch of companies going public, which are scalable and profitable, differs markedly from those in 2021, and many venture-backed firms remain queued for upcoming IPOs. Yet, the incidence of down rounds and bridge financing corrections has risen in early 2024 for both early- and late-stage transactions.

We saw that both Reddit and Astera Labs had strong debuts and have held or pushed further their first-day pops. We are optimistic, hoping that the trend continues to tick up as the market’s appetite for risk increases, with several other large IPOs coming over the next quarter or two.

Role of Diverse and Emerging Managers

In a venture landscape that has faced challenges over recent years, there remains a compelling case for emerging and diverse fund managers. Jamie Kramer, who leads J.P. Morgan Asset Management’s Alternative Solutions and oversees the investment committee for Project Spark, points out that between 2020 and 2022, large entities committed five times more often to established managers than to emerging ones. Now, things are shifting, unveiling significant untapped potential in investing in these new and highly active managers and funds. Emerging managers have outperformed established managers consistently over the past several years and have greater access to differentiated deal flow that’s less crowded and allows even smaller checks to add meaningful value.

Funds such as Florida Funders provide a unique portfolio of startups, including many Miami and South Florida companies, high-growth startups in the Southeast, and others with great potential throughout the U.S. By becoming an investor, you take advantage of Florida Funders’ extensive due diligence, discerning investment strategy and proven track record of success.

Miami’s Position in the Venture Scene

Miami has solidified its presence in the venture capital arena. Even before the pandemic, it wasn’t among the top ten active markets, but it saw deal numbers double from 2019 to 2022. Continued local fundraising efforts and newly established investor bases in the area have kept Miami in the top ranks, currently the sixth busiest VC hub in the nation. By the end of Q1, Miami had completed nearly 100 deals this past quarter.

POV: Investing in VC in 2024

Overall, we are slowly seeing the pickup of the venture capital market, and hopefully, by the end of 2024, we will be in a position to generate liquidity for prior funds. In terms of net new investing, we still believe that there has not been a better time to invest in venture capital in the past decade or so—and the data supports this.

Interested in our investment initiatives? Discover more about venture capital investment opportunities with Florida Funders.