5 Venture Capital Trends to Watch in 2024

1. The Transformative Impact of Generative AI

By 2025, it is projected that over 75% of venture capital (VC) and early-stage investor executive reviews will utilize artificial intelligence (AI) and data analytics. This significant shift marks a move away from outdated research methodologies in asset management.

Generative AI has become a pivotal tool in the investment sector. Traditional due diligence processes for start-up investors have been inefficient, requiring extensive resources to sift through numerous documents and vast amounts of data, while manually generating market comparisons and performance analyses. This 'needle in a haystack' approach is not only time-consuming but also provides limited insights and an incomplete picture.

Generative AI optimizes workflows in venture capital, minimizing research blind spots and offering both qualitative and quantitative insights for faster, data-driven decisions.

As we approach 2024, the influence of government regulations on AI startups is significant. Stricter regulations on data privacy, algorithmic transparency, and ethical considerations may lead to more cautious investment in the sector. The Biden Administration's Executive Order on AI aims to ensure the safety and security of AI through standardized metrics, with a goal of protecting American workers from adverse impacts.

2. IT, Healthcare, and Financial Services Are Leading Sectors

In Q1 2024, there were 3,205 VC-backed deals in the US. Despite an overall decline in VC deals to historic lows, notable activity persists, including some megadeals. The top trending sectors—information technology, healthcare/biotech, and business and financial services—saw funding rounds exceeding $100 million, suggesting potential resurgence in deal activity.

The renewable energy sub-sector is also gaining traction. Generate Capital raised $1.5 billion earlier this year for sustainable infrastructure projects. Other sectors, such as consumer services, industrials, and consumer goods, have also seen significant funding rounds in 2024.

Optimism appears warranted, with venture funding in American and Canadian companies rising by 14% in Q1 2024. Consumers' interest in mastering new technology and businesses' adoption of automation for efficiency and competitiveness have driven the fintech industry's recent success. Financial literacy solutions and online-only banking, which thrived during the pandemic, continue to benefit from technological advancements.

3. Growth in Socially Conscious Investing

Sustainable investing, also known as theme investing, has gained popularity in recent years. In an era of heightened socio-political awareness and global challenges, many investors are drawn to companies that positively impact global relations, environmental issues, and public health. As investors recognize the interconnectedness of these outcomes, sustainable investing is gaining momentum.

This approach often aligns with zebra investing, which focuses on sustainable companies valued below $1 billion. Both investment strategies attract socially responsible investors and offer growth potential in an increasingly eco-conscious future. The trend towards sustainable investing is expected to continue, with new methods emerging.

4. Portfolio Diversification in a Globalized World

With increasing globalization and digitization, geography is becoming less of a concern for venture capitalists. There is a noticeable decentralization of capital from Silicon Valley to other cities worldwide.

This trend extends beyond geography to how investors consider the impact of global disasters, movements, and trends on their portfolios. Many VCs are diversifying by investing in both unicorns and zebras, as recent global events have demonstrated the success of this strategy.

5. Bridge Rounds for Later-Stage Startups

Later-stage startups that have streamlined expenses may attract new capital through interim bridge rounds—funding rounds that bridge the gap between larger investments. This trend is expected to continue in 2024, showcasing investors' financial resilience and growth potential.

Strategic bridge rounds may also be aimed at product launches and market expansions. As market trends and economic conditions influence bridge rounds, investors will likely adapt their strategies accordingly.

Outlook for Venture Capital in 2024

In 2024, VC investors will face challenges from macroeconomic factors and ongoing geopolitical situations. However, they remain focused on identifying lucrative opportunities and deploying unused funds. The current trends in the venture capital industry provide numerous reasons for optimism. 

As investors explore new possibilities and utilize available data sources, they will continue to drive necessary changes in the industry. The need for knowledge remains constant, ensuring that venture capital investors will keep seeking new data and leveraging existing resources.