CHENNAI: Private equity and venture capital (PE-VC) investments are set to hit their lowest levels in six years in 2024, according to recent data. With just over a month left in the current calendar year, total PE-VC investments in 2023 have reached $25.6 billion as of October, falling significantly short of last year’s $32.8 billion, as per research by Venture Intelligence.
This year, monthly investments peaked at $3.5 billion in January, May, and June. The other months recorded investments ranging from $1.6 billion to $2.7 billion, reflecting a downward trend. Several factors, including a decline in mega deals exceeding $100 million, global geopolitical uncertainties, and the denominator effect, have contributed to this slowdown, analysts reported.
Declining Trend Since 2021
The peak of PE-VC investments was recorded in 2021 at $64.9 billion, the highest since 2019. However, investments have been on a steady decline over the past three years. According to Arun Natarajan, founder of Venture Intelligence, the dramatic reduction in large-scale transactions is a primary driver of the overall downturn.
“Mega deals have historically been the backbone of PE-VC investment volumes. The absence of such deals this year has significantly impacted the total value,” Natarajan said.
Key Challenges Impacting Investments
- Geopolitical Tensions: Ongoing conflicts and strained global relations have raised risk aversion among investors.
- Denominator Effect: Lower valuations of public equities have reduced institutional allocations for alternative assets like PE-VC.
- Economic Uncertainty: Inflationary pressures and interest rate hikes have made fundraising and deployment more challenging.
Outlook for 2024
Industry analysts are cautious about 2024, anticipating continued volatility in the global economic landscape. However, emerging sectors such as AI, green technology, and fintech could reignite interest among investors, potentially stabilizing the downward trajectory of PE-VC investments.
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