Key Highlights and Takeaways from AngelList's State of VC 2024

ICYMI, AngelList released its State of Venture 2024 report last week. While the venture market remains below its pandemic-era peak, the data suggest we have already reached a bottom and it is in the rearview mirror, with renewed deal activity and rising valuations offering cautious optimism for a healthier market ahead. Here are some of my biggest takeaways and observations from the report:

1. VC deal activity has remained muted but seems to be picking back up

   • Only 14.2% of the 16,000+ companies on AngelList’s platform saw any price per share change in 2024 (pre-pandemic steady-state average was ~33%).

   • Of those changes, just 62% were markups or exits at a higher price—a historic low compared to a pre-pandemic average of ~75% and the pandemic high of 90%. The remaining 38% of share price changes were down rounds or exits at a lower price.

   • However, deal activity finally began to reaccelerate towards the end of 2024, suggesting stabilization and growth in the broader VC market for the first time since the pandemic-era times.

2. Many companies that raised massive rounds at overvalued prices back during the pandemic boom have been able to kick the can down the road for much longer than originally anticipated

   • The market’s slower follow-on pace reflects the lingering overhang from the massive capital rounds raised at the market’s peak.

   • Many of these companies have significantly cut burn rates to extend runways in an attempt to avoid the need to raise a new round and reprice until they can grow into their valuations. However, a company that raised at a 100x ARR multiple in 2021 (not uncommon for the time) would have to grow revenues 5-10x just to get to a more reasonable 10-20x ARR multiple - not an easy feat.

   • As runways continue to evaporate as we get further out from the pandemic highs (nearly three years at this point), I expect higher startup mortality rates, more markdowns, and increased down-acquisitions for many of these companies. Recent examples, like Divvy Homes selling at a price near its total capital raised and washing out most early investors and employees, are just the tip of the iceberg.

   • For new investors without legacy exposure, these markdowns are primarily just noise. But, for the savvy investor with a strong filter, they could present opportunities to buy high-quality underlying assets at attractive entry prices.

3. Seed valuations have held steady—driven by ‘pre-seed’

   • While valuations at most stages are still below their 2022 highs, seed valuations have primarily held steady, declining slightly in 2023, but quickly rebounding to all-time high levels in 2024.

   • The rise of “pre-seed” rounds—now 40% of all first funding rounds vs. <15% in 2020—has boosted seed-stage valuations. This trend may continue, potentially leading to even earlier “pre-pre-seed” rounds.

   • It’s no surprise that valuations at the earliest stages have held strong, as these stages are generally the least sensitive to broader market and macroeconomic changes. It’s always a good time to be backing companies at the earliest of stages and I expect this to continue to hold true for the foreseeable future as the pace of innovation only continues to accelerate.

4. AI continues to dominate early-stage deals

   • 32% of all pre-seed and seed deals in 2024 self-identified as AI or ML—a dramatic jump from 0.5% in 2017. I would predict this figure to continue to rise in the short-term (especially since these are self-reported tags and nearly every company today wants to call themselves an AI company).

   • However, as AI becomes ubiquitous, I expect companies to revert to more specific vertical labels (e.g., Fintech, Healthcare, Consumer) over time, just as “internet” or “mobile” labels eventually became redundant when each of those technologies became ubiquitous.

5. LPs continue to face liquidity challenges

   • The ratio of distributed value to total value (DPI/TVPI) has fallen from 16% in 2019 to 11% in 2024.

   • This dampens LPs’ ability to redeploy capital, as their VC allocations have grown much larger on paper without distributing any cash back for new commitments.

   • The recent increase in popularity of liquidity solutions like secondaries and continuation funds is an effort to manufacture liquidity, but this is a band-aid solution for a problem that won’t fully resolve until IPO and M&A activity accelerate meaningfully. While I don’t have a crystal ball,

6. Fund performance begins to diverge meaningfully starting in 2021

   • Funds through 2020 show relatively strong performance in line (or even stronger) than normalized historical VC returns.

   • However, since the market reset began, TVPIs for these vintages have barely moved, indicating fewer markups and markdowns.

   • Funds launched in 2021 and later are generally either held at or below cost, partly due to the typical j-curve effect but exacerbated by slowed follow-on activity.

   • For funds deployed at market peak of 2021-2022, it is possible that portfolio companies may be able to grow into their valuations and continue to appreciate thereafter, but this may elongate the timeframe of these investments and impair fund-level IRRs.

7. Valuations rise across stages

   • From 2023 to 2024, median pre-money valuations increased across stages: +20% at pre-seed, +17% at seed, +27% at Series A, and +51% at Series B.

   • The “AI premium” and a few large outlier rounds (e.g., Liquid AI’s $250M Series A, Poolside’s $500M Series B) likely drove the spike, but overall this is a sign that the VC market is stabilizing and the bottom is behind us.

Bottom Line

Despite continued caution in the market, the latter half of 2024 showed signs of a resurgence as deal activity picked up and valuations increased across stages. For LPs, the challenge remains balancing illiquid positions with the desire to seize new opportunities, but I’m hopeful that 2025 is a pivotal year for liquidity with increased IPO and exit activity. As runways dry up for existing highly-valued companies, and the AI mega-wave continues to shape valuations, I expect the venture market to continue to stabilize and grow in a healthy way, as waste is washed out of the system, liquidity returns, and compelling new investment opportunities continue to present themselves in abundance.