As we march into 2024, having already navigated through the initial months, it's an opportune moment to assess the evolving dynamics of the fundraising and investment market.

Despite the year being underway, understanding the trends and predictions for the remainder of 2024 remains crucial for stakeholders across the globe, particularly in Europe. With this in mind, we've delved into an in-depth analysis to forecast the key movements and opportunities in the financial landscape. Here's what we've discovered.

A stable positive sentiment.

The latest State of Tech Survey shows a notable trend: 89% of venture capitalists worldwide and 87% of those in Europe expect more deal activity in 2024 than in 2023.

“_As we approach 2024, we expect both inflation data and economic demand to soften as the tailwinds for growth and risk markets are fading. Overall, we are cautious about the performance of risky assets and the broader macro outlook over the next 12 months due to building monetary headwinds, geopolitical risks, and expensive asset valuations._”

Says Marko Kolanovic, Chief Global Markets Strategist at J.P. Morgan.

A brighter future is also expected if we look more closely at ourselves in Europe. Here, the startup ecosystem is home to around 3,900 tech companies at the growth stage aiming to become global leaders. This number is expected to double over the next five years.

As we move into 2024, the European investment landscape shows promising signs. The diversity and growth of active European investors are notable, with a steadfast dedication to investing across various market phases.

These domestic investors, who contribute to 79% of the total early-stage funding for European startups, have become the cornerstone of our startup environment. Their consistent investment over the last five quarters, particularly at the early stages, provides a stable foundation for new entrepreneurs embarking on their ventures.

“Seizing these opportunities in 2024 is unpinned by investor capacity, upskilling and attracting world-class talent, and maintaining a long-term view around risk and value creation.”

Says Simon Bumfrey, Head of Relationship Banking, HSBC Innovation Banking UK.

Source: State of Tech 2023

This is a considerable change from the previous year when just 66% of European investors foresaw an improvement in deal-making. Despite this positive forecast, there are still underlying worries about issues like reduced exit opportunities, unfavorable venture capital returns, and the ongoing tendency of US investors to pull back from the European market.

“In terms of the pace of deployment, we find the current climate attractive. We deployed rather slowly in 2021, kept it steady in 2022, accelerated in 2023, and expect to accelerate again in 2024.”

Says George Easley from Outsiders Fund for TechCrunch.

The investor landscape has reached unprecedented depths, especially for those concentrating solely on Europe. There has been a steady increase in the number of distinct investors in the European tech sector over the last ten years.

Since 2021, venture capitalists have amassed over $50 billion in new regional funds.

The rise of female founders & female investors.

There is a steady increase in female GPs and female founders across the European ecosystem, particularly at the early stage.

Currently, venture capital teams with a high number of women are outperforming their male-only counterparts. According to the European Women in VC's recent report, these teams excel by 9.3% points. This finding is a powerful testament to the benefits of gender diversity in decision-making within the VC sector.

Source: European Women in VC 2023 Report

The outlook for female leadership in VC is optimistic.

Nearly half of the survey respondents anticipate an increase in female GPs in the next five years, with 14% expecting significant growth. This trend points to a future where women play a more prominent role in guiding the direction of European venture capital.

Source: European Women in VC 2023 Report

This shift is also highlighted by Sophia Bendz from Cherry Ventures and Ekaterina Almasque of OpenOcean who observe a clear increase in female founders across the European ecosystem, particularly at the early stage.

The rise of defense tech.

Before Russia stepped into Ukraine, Europe was already dialing up its defense tech game.

A lot of venture capital and tech companies in Europe stayed on the sidelines, missing a golden opportunity to jump into a field ripe with both strategic importance and potential profits. This hesitation has left a significant gap in the market, particularly when investing in companies that deal with defense and dual-use technologies.

Source: On The Rise of Defence Tech with Nicholas Nelson

According to Nicholas Nelson, the General Partner of MD One Ventures and one of the most active players in European defense tech, European defense tech companies are valued much less than their American counterparts. About 42% lower on average. This valuation gap reveals a big chance for investors to step in and make a difference.

Meanwhile, defense spending in Europe has been on the rise, driven by a collective realization among EU countries that being able to stand independently on the global stage is crucial. This increase in spending is narrowing the gap with the U.S., particularly among NATO members, showcasing Europe's growing commitment to strengthening its defense capabilities.

Investors expect more deals coming in.

Investors are showing renewed optimism for 2024, with a significant shift in deal expectations.

Compared to the previous year, where only 69% of investors expected to maintain or reduce their deal activities, now 89% are forecasting the same number or an increase in deals for 2024, as mentioned in a survey by Affinity.

M&A predictions for 2024

CB Insights has analyzed the financial movements behind the scenes and has identified ten deals that could be on the horizon for an acquisition this year, and we see some interesting names coming out, such as a bold one: Shopify acquiring Stripe.

In Europe, the M&A landscape wants to look hopeful but looks unsure in some areas. According to Norton Rose Fulbright, 6 out of 10 companies want to buy more companies than in 2023. Some of them are eager, thinking they’ll do a lot more, mentioning that most are planning to do it through already saved-up money.

The hottest bets right now are on artificial intelligence, and this industry is expected to get even more attention with further technological developments. Another important point is that rules and regulations, especially those that prevent companies from having too much control over the market, are big concerns.

It's a complex scene with lots of moving parts, but it's certainly interesting to watch how things will unfold.

Down rounds will continue to rise

Source: There is nothing wrong with a down-round

The estimated percentage of down rounds reached a 10-year high of 17% in Q3 2023, up from just 5% in 2021. This trend has been steadily increasing over several quarters.

Source: Q3 2023 US VC Valuations Report

Despite efforts, cash reserves have their limits. Many companies are expected to enter the market in 2024, potentially facing flat or down rounds due to their high valuations from 2021/2022.

Going beyond the hype with AI.

Companies are now fighting with the practical challenges of implementing generative AI, such as large language models.

These challenges encompass complex data handling, substantial computing costs, and adapting to new legislation – notably, the recent adoption of the AI Act by the European Union. The significant expenses and complexities involved in developing competitive foundational large language models will likely continue benefiting major players in the field, such as Microsoft, OpenAI, Google, and Meta. This trend of dominant incumbents is a familiar scenario in the technology sector.

For startups, competing with established giants is a common hurdle. Regardless of the industry or location, the key to a startup's success is in creating and delivering products that effectively address real-world issues on a large scale.

Source: Private Capital Investment Predictions Report 2024 Edition

AI is currently at a pivotal juncture, presenting a prime opportunity for breakthrough innovation and market application.

Building a business will become easier in 2024.

The downturn might continue, but AI advancements will make building businesses easier in 2024 and could lead to more efficient startups, as we find out from Antler.

For founders, the primary challenges will remain in product and team development and selling unique ideas. Founders must demonstrate in-depth knowledge and a profitable business model to attract VC interest. Capital will be a major challenge, particularly for companies that have previously raised significant funds.

"There will be more innovation and, subsequently, opportunities for entrepreneurs. This means it will be easier to build in 2024."

Says Alan Poensegen, Partner at Antler.

Join our community of like-minded investors to align your thesis to these trends, build a diversified portfolio alongside reputable VCs and angel investors, and access public and private deals handpicked for you.

Start investing today.