The State of Venture Capital in 2024: A Gradual Recovery
The venture capital landscape in 2024 showed signs of recovery from the 2023 downturn, but remained significantly below the peak levels of 2021, according to new data from Carta. Peter Walker, Head of Insights at Carta, which serves 45,000 U.S. startups, reveals that total venture capital funding increased from $75 billion in 2023 to between $83 billion in 2024 – a modest improvement that suggests a gradual return to pre-pandemic startup funding levels. Despite the increase, funding remains well below 2021’s peak levels, indicating a more measured funding environment.
The AI Investment Factor
Perhaps the most striking trend in startup funding for 2024 was the continued dominance of artificial intelligence startups. AI companies captured approximately 30% of all venture capital deployed on Carta’s platform, up from just 8% two years ago. Interestingly, this AI funding advantage increased at later stages, with roughly half of all major late-stage VC rounds going to AI-focused companies.
Stage-By-Stage Startup Investment Performance
The venture capital environment varied significantly by stage: Early-stage funding (seed and Series A) saw a 13% decrease in deal volume. Growth stage VC investment (Series B and C) showed modest improvement with 5% more deals. Late-stage startup funding (Series D and beyond) demonstrated the strongest recovery with a 17% increase in deal activity.
Bridge Rounds and Down Rounds Signal Ongoing Challenges
About 20% of all venture capital rounds in 2024 were down rounds, double the historical average of 10%. This high percentage reflects the ongoing correction from 2021’s elevated startup valuations. Additionally, bridge rounds remained common, particularly at the seed funding stage, though data suggests these intermediary funding rounds often serve as a warning sign – companies that raise bridge rounds are statistically less likely to secure their next primary round of startup funding. The median time between funding rounds has also lengthened beyond the traditional 18-24 month window, forcing founders to adapt their strategies, including extending runway, achieving higher metrics, and reconsidering growth trajectories. Founders should now plan for at least 24 months of runway when raising capital.
Geographic Distribution of Venture Capital
Despite ongoing discussions about startup migration, the San Francisco Bay Area maintained its dominance in 2024 venture capital deployment, capturing 35% of early-stage capital and 50% of late-stage venture funding. Other major startup hubs, such as New York, Boston, and Los Angeles, showed continued strength, with Boston expanding beyond its traditional biotech focus.
Startup Failure Rate and SAFEs
2024 saw the highest absolute number of startup shutdowns in Carta’s history, though the failure rate remains consistent at around 90% for seed-stage companies. This indicates a concentrated timing of failures, particularly among companies funded during 2021-2022. SAFEs (Simple Agreements for Future Equity) have become the overwhelming choice for early-stage funding, significantly outpacing convertible notes, with 85-86% being post-money SAFEs reflecting investor preference and YC’s influence. However, there are concerns about overuse, with some founders staying on them for too long, especially when stacking multiple SAFE rounds.
Key Takeaways For Startup Founders
The bar for startup funding has significantly risen since 2021, with founders needing higher metrics, such as at least $3 million in ARR, to secure funding. Founders must be strategic about their funding choices and growth trajectories, understanding that taking venture capital demands rapid growth. The future outlook suggests gradual improvement with continued bifurcation between AI companies and others, heightened focus on retention metrics, and limited IPO prospects in 2025, impacting capital recycling. Success in this environment requires strong metrics and strategic funding decisions, reflecting a more disciplined and measured startup funding landscape post-2021.
