With the rise of interest rates and surging inflation, 2023 has been a year of challenges. Pitchbook and NVCA reported that the third quarter of 2023 was nearly “the lowest overall venture deal value in six years and the lowest deal count in roughly three.” For founders who did close a raise, almost one-fifth had to take a down round.
But artificial intelligence, whether driven by the latest hype cycle or backed by genuine staying power, has stimulated investor optimism as interest rates finally seem to be stabilizing. These circumstances created some stark contrasts between our 2023 investment prediction report data and the results of this year’s survey.
Now the 2024 predictions are in, based on a survey of more than 700 private capital professionals about their strategies for the coming year. Not only will AI stimulate new investments, it will also change the ways investors actually approach the way they work, creating efficiencies that will speed up deal sourcing, research, reporting, and outreach, among other workflows.
Read the report for a full analysis of the results, or get a preview below before you dive in. If you just want the scoop on AI, skip to the end of this article.
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Prediction #1: On the volume of deals in 2024
Vivek Ramaswami, Partner at Madrona Venture Group, set the tone of the report when he said, “You can feel the shift happening of seeing more deals in Series B+ stages. It's getting people excited, there’s an element that things are coming back.”
Compared to last year, when 69% of investors thought they would be doing the same or fewer deals in the near future, the majority now feel more optimistic.
But that doesn’t mean investors haven’t learned from the previous two years. While investors are optimistic, they’re also spending way more time on due diligence. The average time spent researching a deal has gone up significantly—download the report to find out by how much.
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Prediction #2: Networks will drive deals with renewed fervor
Whereas in 2023 many VCs shifted their focus to supporting their portfolio companies, it looks like they’ll be ready to look outward once more next year.
Compared to last year, when only 19% of investors were networking with the same zeal, VCs will be more proactive in expanding their networks and strengthening existing relationships to make sure they’re top of mind for the best deal opportunities and further LP investments. The report outlines how these priorities have shifted, and what top VCs are doing to stay ahead.
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Prediction #3: Artificial intelligence will change the game
As Andrew Cafourek, Head of Technology at Anthos Capital, said about AI and venture capital workflows, “The real question we're working to answer is, ‘How do we take all of our qualitative research and pair it with our structured data in a way that makes us all better at our jobs?’”
Deal sourcing requires a lot of data and a lot of resources—and it remains a top priority for VCs, with 30% of those surveyed listing it as their main priority and 74% including it in their top three priorities for 2024.
And while optimism may be up, so is the complexity of sourcing and researching high-potential deals. Compared to last year, when 22% of firms used 7+ data sources to make decisions, that number is now closer to 30%.
Firms are handling this complexity in two, often overlapping, ways: hiring in-house engineering talent to analyze large pools of data and/or buying off-the-shelf tools. Only 16% of investors surveyed said they weren’t planning to invest in AI at all, while 63% of firms said they’re adopting AI to automate daily tasks.
No matter the specifics behind each firm’s AI use case, the general consensus is that artificial intelligence will give structure to a high volume of unstructured data. Whereas a human analyst may evaluate a few opportunities per day, AI will accelerate the deal sourcing process by ingesting and evaluating thousands of opportunities in a short amount of time.
How artificial intelligence will help firms in 2024
Firms investing in AI will be using it primarily for:
- Identifying investment opportunities from a larger pool of data
- Performing faster due diligence
- Synthesizing meeting notes and capturing next steps for faster follow-up communication
- Drafting first-contact email templates
- Tracking the performance of portcos to inform exit decisions
Affinity’s next steps in artificial intelligence
“We place Affinity at the center of our entire tech stack because we found it's a really great tool for our people to add in their meeting notes and update deal status. From a compliance standpoint it's going to be a good fit for the AI tools that we will integrate in the future.”—Diogo Henriques, COO, BAM Elevate
With AI, our goal is twofold: boost productivity and effectiveness by freeing up time that was previously spent capturing and gathering information, and providing more insights that help dealmakers make informed decisions across the entire life of a deal. Look out for new products and features in 2024:
- Affinity Industry Insights: Access a profile right from your browser that includes a company’s market landscape, product offerings, competitive advantages, risks, and monetization strategies.
- Affinity Notetaker: Produce a transcript of your meeting, then sync it to people and company profiles.
- Affinity Deal Assist: View proprietary insights from notes, attachments, and emails that turn into searchable snippets for analysis and reporting.
Final note: The “cautious” in cautious optimism
While there are solid reasons to be optimistic, the past two years won’t easily be left behind—and there are plenty of reasons to approach the coming year with caution. As the Federal Reserve, the Bank of Canada, and the European Central Bank hold interest rates without a commitment to lowering them in the face of unpredictable inflation, there are still a fair amount of “wait and see” signals in the market.
Read the 2024 private capital investment predictions report to get the complete story.
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