Venture capital market in the U.S. cools as investors become cautious
A report released on Thursday by PitchBook-NVCA showed that US venture capital investors remain cautious amid economic uncertainty, with total deal value falling nearly 32% quarter-on-quarter to about $37.5bn in the third quarter. This highlights the challenges faced by the venture capital industry despite the strong rally in US public markets.Limited liquidity has prompted investors to negotiate tougher terms with startups, with many companies delaying fundraising until conditions improve.The report highlighted the challenges faced by the venture capital sector, which has been the focus of attention on the back of large funding rounds for artificial intelligence companies. "AI companies have received the most attention in the venture capital space," it said.Despite the slowdown in deal activity, a rate cut by the Federal Reserve could spur deal activity. "While 50 basis points is not enough to start the venture capital industry, it is a step in the right direction," said Emily Zheng, a venture capital analyst at PitchBook.A recovery in the IPO market could provide investors with more exits, further accelerating venture capital deals. Longer private periodsLeading startups such as Stripe, OpenAI and SpaceX have opted to remain private for longer, opting to raise more capital through secondary offerings rather than tapping the public market for liquidity. "The secondary market is a win-win," said Ms Zheng. "Companies can stay private for longer and investors who want liquidity can get it."The growing appeal of private assets could also prompt some companies to delay IPOs, especially if they can raise enough capital from private market investors."Democratisation will come, private markets will continue to open and this new asset class will continue to exist," said Howe Ng, head of analysis and investment solutions at Forge Global (FRGE).