At the onset of 2023, predictions were made for the technology investing ecosystem, anticipating the Fed’s impact on inflation and the role of machine learning in shaping workflow software. As we step into the second year of the post-pandemic economy, a reflection on the past year and an exploration of emerging trends offer insights into what 2024 may hold for the technology and venture capital landscape.
IPO Market Dynamics
The IPO market, which remained subdued in the first half of 2023, experienced a shift in momentum with several significant issuances in the latter part of the year. While higher interest rates and geopolitical tensions continued to impact valuations, a few outlier companies demonstrated strong unit economics and cash flow, influencing a surge in momentum for core software IPOs. The IPO landscape is expected to resemble the quiet yet dynamic nature of 2023, with sporadic moments of significant market activity.
Mergers and Acquisitions (M&A) Outlook
M&A activity is poised to increase in 2024, driven by the anticipation or reality of interest rate changes. The previous two years saw M&A averaging about $49 billion, and this is expected to rise above $60 billion, primarily fueled by AI acquisitions. Private Equity is anticipated to play a significant role as a buyer, particularly for companies exhibiting steady growth in the range of 10-25%, akin to the trends observed in 2023.
Dominance of AI and Data
AI and data are projected to maintain their stronghold in the funding landscape. With AI becoming an integral component of every product, startups are no longer categorized by it but rather by how it serves as the core or component of their offerings. Large Language Models (LLMs) are driving increased demand for data, leading to innovations in data manipulation. VC investment in startups in the AI space is expected to persist, with continuous advancements in LLMs shaping the data landscape.
Web3 Resurgence and Crypto Dynamics
The anticipated approval of the Bitcoin ETF is expected to drive renewed interest in web3 financing. The crypto winter forced companies to focus on revenue generation, and the rise of tokens with dividends, especially outside the U.S., is foreseen. ARR-based web3 businesses are expected to achieve scale, marking a resurgence following setbacks in the previous year.
U.S. VC deals are expected to see a decline from $275 billion in 2022 to $200 billion in 2023, with a sustained range of $200-$220 billion in 2024. Valuations are projected to remain relatively steady, with AI businesses commanding a premium of about 10-15% over the market.
AI Regulation and Societal Impact
The discourse around AI regulation gains prominence, influenced by European regulations. It has become a crucial topic in the U.S. election conversation, with deepfakes and machine-generated content fostering increased distrust in media. Biden’s executive order on AI is anticipated to be a contentious point during the presidential debates.
AI’s influence on consumer behaviour, especially in mobile interactions, is expected to drive the share of AI-enabled searches to approach 40% of all consumer searches. Innovations in AI-enabled search, chatbots, and personalized content will continue to shape consumer experiences.
AI-Driven Productivity Improvements
Companies, particularly startups, are expected to report significant productivity improvements from AI adoption. While reducing headcount growth, AI is projected to contribute to revenue growth, with an estimated 10% increase in Annual Recurring Revenue (ARR) per employee, double the decade-long average. AI’s role in driving efficiencies within companies is set to become more pronounced.
As we navigate through 2024, these predictions offer a glimpse into the evolving tech landscape, where AI, IPOs, M&A, and regulatory discussions are poised to play pivotal roles in shaping the industry’s trajectory.
