While a down year compared to all-time highs experienced in 2021 and 2022, 2023 represented another strong year in the U.S. venture community based on deal flow and total investments, even if not shared equally among all venture-backed companies and all stages of companies. High valuations in low interest rate environments during the pandemic contrasted with rising rates and inflation in 2023 resulted in many venture-backed companies seeking additional capital on lesser terms than their prior high-water valuations. Accordingly, many companies facing stalling growth and a liquidity crunch yielded many convertible note rounds, equity down rounds and stronger economic terms and downside and governance protections for investors, in addition to distressed exits. More aggressive regulatory regimes, particularly antitrust enforcers, represented additional hurdles for acquisition targets to obtain exits while the public markets remained tepid. On the other hand, significant government incentives have offered companies in certain high priority industries lucrative opportunities to attract investment. In 2024, we expect that the recent pare-back in start-up valuations will lead to more methodical growth, more meaningful oversight and professional corporate governance, and balanced economics between founders and investors, though companies that raised at pandemic highs will continue to face difficult decisions. Nevertheless, we remain cautiously optimistic that the prospect of reduced interest rates and increasing liquidity demands will present a more favorable climate for private dealmaking and public market opportunities in 2024.

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