State of Private Markets: Q2 2024

Always nice to get a Carta data print. Some headlines and thoughts on each:

Q2 boost in VC deal volume and cash raised (chart above)

Mostly it’s just nice to see this not go down. Not up from 2023 numbers, but not down either. Probably getting ahead of ourselves, but with suspected rate cuts and number looking similar to pre-craziness 2019/2020 - the optimists (like me) are saying we’ve stabilized and could push horizontal or up from here.

Down rounds decreased to six-quarter low

Follows the same thread as above. A lot less down rounds than there have been for awhile. We’re still at 17% which is a ways away from the ~11% average we saw from the pre-ZIRP years, but it’s a big step down from the 24% we saw last quarter. This touches on both the improved environment and the improved outlook Founders have on there being more money available at better terms later - rather than taking the down round today.

Seed and Series A round counts / cash raised show modest gains

Follows similar trend to the larger VC deal volume / deal count trend. Not up, but not down. Nice health flatness that looks more like pre-ZIRP numbers.

Series B an C fundraising was a bit slower

But barely. Mostly flat and decidedly up from the end of 2023 if you look at Series C. If you really want to make a comment here, you could try to point towards a "flight to quality” - aka similar money, but less deals - but it’s really pretty flat.

Late-stage (Series D and E+) brought in more cash

Notable uptick here in the Series E+ world jumping from ~$1.5B per quarter for the last year and a half all the way up to $3.7B in Q2. Trend-spotting would say this is a combo of AI and IPO-window optimism, but the air gets so thin at that stage that it’s hard to be super data driven because there just aren’t a ton of data points. Either way - seems healthy. Definitely healthier than it was the last year or so.

Median time from Seed to Series A decreased

The amount of time people were taking to get to Series A had been trending up from just under 2 year to over 2 years and now it’s back under 2 years. Splitting hairs a bit, but it’s a sign that companies are coming back to market rather than waiting it out for a better environment. The other part worth mentioning is that this data doesn’t take into account the amount of companies that aren’t making it to Series A at all. We’ve seen a notable uptick in shutdowns as ZIRP companies run out of money.

Less investor-friendly terms

The depth of data Carta has is unique in that a lot of the actual terms are run through them so they don’t just see the top line filing numbers - they see the nitty-gritty of the deal terms. Three specific things they track there are:

Liquidation Preference Over 1x: This means that investors get back more than just their original investment before any money is shared with common shareholders. For example, a 2x liquidation preference means the investor gets twice their investment back first.

Participating Preferred: Investors with this type of stock get paid twice during an exit: first, they receive their initial investment back (plus any liquidation preference), and then they share in the remaining proceeds with common shareholders, like they held common stock too.

Cumulative Dividends: If a company can't pay dividends in a given year, the unpaid dividends accumulate and must be paid out in the future before any dividends are paid to common shareholders.

These terms are all terms that investors put in deals to mitigate their downside risk and ensure they get paid back before others in various scenarios. Getting paid back first means that other people are getting paid back second (or third, or not at all) - so when these terms are on the rise it’s a sign that investors have more leverage.

An interesting trend here is that besides the liquidation preference and ZIRP-aftermath spikes, terms have mostly been getting less-investor friendly since 2020. Maybe VCs are generally softening or maybe people have gotten more comfortable with the power-law that pushes them to count on their winners rather than haggle over the losers.

You can check out the full report from Carta here.

Sandhill Exclusive Content 

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Wei-Wei W Co-Founder & CEO @ Momentic

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Nikhil Gupta Founder @ Vapi

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ICYMI: India's Early Stage Startup Ecosystem

Last week, three awesome guests joined us to talk about India's vibrant early-stage startup ecosystem. Here’s a bit more on our three panelists:

• ​Sajith Pai VC @ Blume Ventures, India - Sajith is a Partner with Blume Ventures, a leading Indian seed fund. At Blume Sajith covers India consumer and India B2B (Classplus, Leverage Edu are notable portcos). He is also known for his writings hosted at sajithpai.com and the indusvalleyreport.com

• ​Kushal Bhagia Founder @ All In Capital - Kushal is the Founder and CEO of All In Capital, an early-stage VC firm focused on backing innovative startups. Previously the CEO of FirstCheque, Kushal is a key figure in India's venture capital scene, known for his sharp investment insight and commitment to empowering entrepreneurs.

• ​Anmol Maini Co Founder @ Untitled Ventures - Anmol is the co-founder and partner at Untitled Ventures - an early stage venture fund investing in Indian founders. He has previously worked as an engineer with Startups in the US and writes a newsletter on the Indian startup ecosystem.

Looking ahead to September 👀

​Join us on September 11th as we'll be deep diving into the private markets and the latest venture news. I’m sitting down with a few of my favorite founders and investors, so this isn’t one to miss!

• ​Tyson Hendricksen CEO @ Notice

• ​Walter Chen CEO @ Sacra​

Talk soon,
Adam

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