Last year the investment market saw more of a return to normality from prior years, with many commentators noting that levels of investment throughout 2023 were similar to pre-Covid levels. As a result of this, many investors will be actively looking to support exciting businesses who meet their sector criteria in 2024.
But what trends will impact the investment market this year? We’ve identified four headline trends which we believe are likely to affect the market…
Some commentators have accused investors of ‘sitting on the sidelines’ last year. The general view for 2024 appears to be that an increased amount of activity is expected.
As with every year, investors are incentivised to get out there and deploy their capital. If it is true that investors have ‘dry powder’ from 2023 then this will be increasingly the case this year.
The Fintech Times interviewed a number of experts in a recent article and many of the commentators seem to share this view. Comments include ‘Following a challenging period of uncertainty, it does look like the growth mindset is coming back’, and ‘This coming phase could well be the best time for startups and venture capital (VC) investors in a long time’. (1)
We all know that a general election is looming, with polls set to open later this year. The uncertainty of an election can very often add turbulence and uncertainty to markets.
The Financial Times recently published an article titled ‘What can investors expect from 2024?’ in which they acknowledge that a change in government may be likely this year, but the more moderate leanings of a government led by Sir Keir Starmer would be ‘unlikely to startle investors’. (2)
Longer term, last year’s proposals to direct funding from major pension funds into startups/scaleups should also help to deepen the opportunities available, though we would not expect to see the impact of this immediately – possibly not until 2025 onwards.
For those businesses who are at Series A stage and above, the upcoming US election may perhaps be more concerning on the availability of funding from US VCs. Unpredictability here seems higher, though the positive angle with US investors is that high levels of capital are often available and either political candidate is unlikely to want to damage availability of capital to scaling businesses or to materially impact US-UK relationships.
Many VCs we work with have a strong sector focus, and in times of uncertainty investors can tend to lean more heavily into their specialisms and areas of expertise.
Much of the focus in recent times has been around AI and CleanTech, with HealthTech also maintaining a strong appeal, and many commentators expect this to continue into 2024.
Kevin Chong, co-head of Outward VC, is quoted in The FinTech Times as stating: “This coming phase will see leaner, more resilient start-ups matched with leaner, more resilient investors. We will see the drivers of innovation shift from mobile and cloud computing to data and profound advances in AI. We will see a convergence of sectors where start-ups are built on the intersection of climate, education, financial services, and health”. (3)
Environmental, social and governance criteria (ESG) has become increasingly important to investors over the past few years. We now very often see ESG reporting requirements and compliance undertakings baked into investment documentation, and many VCs will track and evaluate these metrics when assessing opportunities. This is likely to continue into 2024, particularly if new government incentives to achieve net zero and other similar objectives are implemented.
The Confederation of British Industry have strong feelings in this area, stating ‘we need to make sure the UK gets behind green growth. We don’t have a second to lose, as firms clearly have a will to invest in green technologies and decarbonisation. There are major export markets to be won – and we have a huge opportunity to secure significant investment from abroad, strengthening the UK’s economic prospects’.
As part of TechSW’s Growth Forge programme, we expand on our predictions for 2024 in an article, with added insight from several VC funds we have worked alongside. Click here to read the full story.
For further advice and information about the 2024 investment market, please contact Chris Dyson.
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