Following the uncertainties of the 2022 and 2023 financial markets, a shift is beginning to take shape. Investors, having navigated unpredictable market conditions since the pandemic, are beginning active pursuits of new opportunities. Many are considering a renewed tolerance for moderate risk-taking, an attitude gaining momentum as marketplace confidence grows.
While investment challenges persist, from geopolitical uncertainties to the ever-shifting economic landscape, the market in 2024 is showing more potential as investors begin reevaluating holdings and opportunities.
With public equities reaching near historical highs, venture capital emerges as an intriguing alternative. Jumping in with earlier-stage companies often opens the door to potentially higher returns, a rarity in the later stages of overvalued public companies. Earlier-stage investing is more appealing than ever, promising significant upside potential while avoiding the risks tied to inflated valuations.
Late-stage venture has been hit the hardest amid rising interest rates. According to Pitchbook data, the median late-stage valuation in Q3 fell to $71 million, marking a 29% drop from Q1. Alternatively, early-stage companies have held up better, as average valuations have dropped 15% from $45 million in 2022 to $38.5 million in the second quarter of 2023.
Further supporting that 2024 is ripe with opportunity, competition has plummeted due to a market-wide liquidity-crunch, contributing to a sustained high capital-demand-to-supply ratio for venture. According to Pitchbook, the number of active venture investors in 2023 dropped by 38% compared to the year prior—translating into 2,725 fewer firms making deals—working in favor of the venture investor.
It is important to mention that while early-stage venture represents a more significant risk profile, we at Treedom House like to enter companies post-product-market-fit and often at the front-end of its growth stage. Given the often long holding periods of venture investments, entering companies at the growth stage can still earn investors a risk-worthy return. It is a “sweet spot” that we find working well by many measurements.
Just like many in the venture space, a significant focus area for us is artificial intelligence (AI). AI has emerged as a key driver in this renewed momentum for both venture and public equities. AI-related ETFs have outperformed the S&P 500 in 2023 by a considerable margin already, and companies like Nvidia, one of the winners of the AI boom, have grown 236% in 2023 alone. Across various industries, from healthcare to fintech, AI is proving to be a disruptive force, catching the attention of many investors as confidence increases with the anticipated easing of interest rates.
Our investment philosophy seeks audacious, moonshot endeavors—ventures that envision a brighter future. The relentless drive to solve complex challenges, embodied by the passionate teams we support, is the foundation of our thesis. From revolutionizing the semiconductor industry with lab-grown diamonds to bridging the digital divide in remote communities with a constellation of satellites, our investments showcase the transformative power of VC, actively shaping the future of healthcare, pioneering advancements in early dementia and Alzheimer’s detection, and reimagining urban mobility.
Yet, the privilege of investing in disruptive ideas pales when compared to the invaluable human connections forged along the way. We stand shoulder to shoulder with some of the most inspiring visionaries on the planet—individuals who wake up each day driven by an unwavering commitment to make a lasting impact on the world. Witnessing their passion, resilience, and ingenuity is humbling and continues to be an experience that constantly inspires us.
In the ever-evolving landscape of venture capital in 2024, investors must remain adaptable and forward-thinking. As technological advancements continue to shape industries, staying at the forefront of innovation becomes a strategic imperative.
At Treedom House, we recognize the significance of identifying disruptive ideas while fostering an ecosystem that nurtures and accelerates their growth. As we navigate this dynamic terrain, our commitment extends beyond financial support; we actively engage with our portfolio companies, offering strategic guidance and leveraging our network to propel them toward success.
We look forward to continuing investing in and supporting companies with the best potential, forging new paths in innovation, collaboration, and transformative impact. As we venture into this fertile ground of possibilities, we anticipate not only witnessing the evolution of groundbreaking technologies but actively participating in their journey towards reshaping industries and creating a positive, lasting impact on the world.
