VC Firms Remain Hesitant About Dealmaking Despite Market Rally

A recent stock market rally hasn’t made American venture investors any less cautious.

That’s according to a report Thursday (Oct. 10) by Reuters, citing new Pitchbook-NVCA data showing around $37.5 billion of deals made in the quarter ending Sept. 30, down almost 32% from the prior quarter.

A lack of liquidity has caused investors to seek tougher terms from startup companies, the report notes, which has led many of them to hold off on funding until conditions are better.

Reuters says the new findings underscore the challenges facing the venture capital (VC) space, coming at a moment when much of the focus has been on massive investments into artificial intelligence (AI) companies.

“AI companies are commanding the most attention in venture,” the Pitchbook-NVCA report said.

The most obvious example of this trend would be OpenAI, which recently announced a $6.6 billion funding round that valued the company at $157 billion.

“We’re seeing a consolidation of capital around clear winners in the general LLM [large language model] space — OpenAI, Perplexity, Mistral, LLaMA,” Hannah Chelkowski, co-founder and general partner at Blank Ventures, told PYMNTS last month. “This funding round further cements OpenAI’s position as a leader in this space.”

The Reuters report adds that while dealmaking has slowed, the Federal Reserve cutting interest rates could bolster activity.

“Though 50 basis points won’t be enough to jumpstart venture, it is a step in the right direction,” said Emily Zheng, VC analyst at PitchBook.

And a reinvigorated initial public offering (IPO) market could further help VC deals by giving investors more chances to exit their investments, the report adds.

Meanwhile, high-profile startups such as Stripe, OpenAI and SpaceX are opting to remain private longer, offering employees liquidity by conducting secondary share sales instead of turning to the public markets.

“Secondaries are the best of both worlds. Companies can stay private for longer and investors that want liquidity can get it,” Zheng said.

Meanwhile, companies that do want to go public in the U.S. — and the U.K. — are challenged by regulators, JPMorgan Chase CEO Jamie Dimon argued earlier this week.

In a Bloomberg Television interview in London, Dimon said increasing expenses from litigation and regulatory filings have caused the number of IPOs to lag at a moment when public market valuations have surged.

“I think it would be incumbent for us to make it easier and cheaper to go public, and we have to figure out a way to do that,” Dimon said.