Theory Venture’s Tomasz Tunguz unveils 2024 predictions
At the end of 2022, many industry insiders made predictions about the technology investing ecosystem for 2023. Now, as we enter 2024, it’s time to revisit those predictions and explore the landscape of the tech and venture capital markets.
The IPO Market and venture-Backed Software
Looking back at 2023, the IPO market remained closed in the first six months. However, later in the year, there were significant issuances, with 7 venture-backed software IPOs completed. It’s interesting to see that Klaviyo’s exit didn’t open the public markets as widely speculated. Moving forward to 2024, we can anticipate similarities with higher interest rates and geopolitical tensions continuing to impact valuations and defer IPOs, resulting in a relatively quiet landscape.
Mergers and Acquisitions (m&a)
The M&A landscape is expected to pick up throughout 2024, primarily driven by AI acquisitions. In the last two years, M&A activity totaled about $49 billion, and it is projected to surge to above $60 billion this year. Private Equity is forecasted to become an essential buyer of companies growing 10-25%, continuing the trend from 2023. As the public technology markets demonstrate strength and valuations creep back up, we can foresee an increase in M&A activity.
The Dominance of AI and Data
AI and data are set to continue dominating the funding landscape in 2024. AI is no longer just a category but has become the core or a component of every product. The rise of Large Language Models (LLMs) has entirely transformed data in many ways, driving increased demand for data and commanding significant VC investment. We can expect to see a surge in new data products and data teams as technology continues to evolve.
Resurgence of Web3 and crypto
The Bitcoin ETF is anticipated to drive a resurged interest in web3 financing. Following the setbacks in the industry in 2023, the decision to move forward with Bitcoin ETFs in the U.S. is expected to mark a significant shift for web3 and solidify the digital assets space as part of traditional finance. Moreover, we can expect to see more ARR-based web3 businesses achieving scale.
VC Deals and Valuations
U.S. VC deals fell from $275 billion in 2022 to $200 billion in 2023 and are forecast to sustain at about $200-$220 billion in 2024. Valuations are expected to remain relatively steady, except for AI businesses, which are projected to command a premium of about 10-15% to the market. Although there won’t be as sharp of a decline in VC deals as seen between 2022 and 2023, LP reallocation to other asset classes continues, leading to a cautious market outlook.
The Impact of AI Regulation
The discussion around AI regulation has become a critical topic in the U.S., primarily due to the rapid European regulation. It is expected to take a prominent place in the upcoming election conversation, especially as deepfakes and machine-generated content sow increasing distrust of media. The EU AI Act is forecasted to have trickling effects on U.S. businesses, thereby impacting the U.S. AI conversation and the administration’s rush to develop operational processes and frameworks.
Consumer Searches and AI-Enabled Searches
The share of AI-enabled searches is projected to approach 40% of all consumer searches as consumer behavior patterns, especially on mobile devices, drive innovation in this direction. AI has already made significant waves for its use cases on the consumer side through chatbots, personalized content, and AI-enabled search. With the rise in ecommerce, we can expect the continuation of AI-enabled searches as consumers leverage the technology for more personalized experiences, ultimately shaping the future of consumer behavior.
Productivity Improvements and Revenue Growth
Companies and startups are anticipated to report meaningful productivity improvements from AI, leading to a reduction in headcount growth while still achieving revenue targets. It is projected that AI will drive a 10% increase in Annual Recurring Revenue (ARR) per employee, twice the decade-long average. This growth indicates the significant impact of AI on efficiencies within companies and its potential to enhance revenue-per-employee metrics.
Conclusion
In conclusion, as we advance into 2024, we can expect the continued dominance of AI, the resurgence of web3 and crypto, and solidifying regulations surrounding AI and technology. Furthermore, the landscape of venture capital investing is poised to evolve, with M&A activities picking up and the IPO market likely to encounter challenges. The predictions by Theory Venture’s Tomasz Tunguz shed light on the future of the tech and venture capital markets, providing valuable insights into the changing dynamics and trends that will shape the industry in the year ahead.
Source: techcrunch
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