Top VC Trends for Q4 2023

Venture capitalists from around the world have a cautious and yet positive outlook for 2023.

The Venture Trends Q4 2023 survey shows more than half (61%) lean towards a positive outlook on the VC landscape, which underscores a generally optimistic sentiment among emerging managers worldwide. In contrast, the neutral and negative sentiments account for a smaller portion of the votes, 25.7% and 13.3% respectively.

Top Trends + Analysis

The significant portion of neutral votes hints at a careful but receptive attitude towards market movements, emphasizing a balanced approach to investment and valuation tweaks. While the fewer negative votes show that even with obstacles like the economic downturn and reduced IPO actions, the general feeling towards venture capital movements is largely positive and robust. The survey highlights that an increase in VC ethics and ethical AI are equally anticipated for the last quarter of 2023.

The 6 Top Anticipated Trends

Here are the top five trends along with a description of each along with analysis of the sentiments associated with them:

1. Increased VC Ethics

Positive sentiment, 9.0%

The recent vote and introduction of new rules by the SEC are setting the tone for a more ethical VC landscape. Starting now, for example, fund managers will have to discuss any side letter agreements with all LPs. This is a positive trend as it helps level the playing field for emerging managers and sets the stage for a fair venture capital industry.

What do you think are the critical ethical considerations for VCs as the industry evolves?

2. Growth in AI and Ethical AI

Positive sentiment, 9.0%

The development of AI technology continues to draw attention. Yet, it’s not just about investing in AI; there’s a rising demand for ethical AI systems that combine smart capabilities with a dedication to privacy, security, and societal principles. This inclination showcases the current shift in investor attitudes, favoring technologies that harmoniously integrate innovation with ethical values.

What do you think is the best approach to ethics in AI?

3. More Bridge Rounds (Neutral sentiment, 8.3%)

Neutral sentiment, 8.3%

The uptick in bridge funding rounds indicates that startups might be choosing to remain private for extended durations before deciding to go public or pursue an acquisition. This pattern emphasizes a more deliberate and measured strategy in business expansion, resonating with the trend of lower valuations and slower investment pace.

How significant of a role do you think bridge rounds will continue to play?

3. Lower Valuations

Neutral sentiment, 7.6%

Lower valuations are an emerging trend, often viewed as a double-edged sword in the VC world. On the one hand, these decreased valuations might be a sign of increasing caution in the venture space, as investors become more discerning in their allocation of capital. On the other hand, this could potentially be good news for venture capitalists seeking deals at less inflated prices, indicating an increased emphasis on sustainable growth and realistic pricing.

What do you think the implications are of continued lower valuations?

5. Increased Due Diligence

Neutral sentiment, 6.3%

As the venture capital market continues to rebound, there is an anticipation that deals will continue to face more due diligence in Q4 as VCs continue to exercise more caution.

What are the implications for the market and companies as they face increased due diligence?

6. Growth in Sustainability

Positive sentiment, 5.6%

The increased conversation and focus on sustainability is predicted to continue to grow as the world continues to face environmental challenges. This is a positive trend as venture capital industry has the ability to invest and build a better future for all.

How can venture capital firms ensure they keep sustainability top of mind as they invest in the next generation of companies?
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In Q4 2023, the venture capital scene is evidently shifting towards sustainability, ethical considerations, and measured expansion. Even with the decelerated momentum and reduced valuations, the growing enthusiasm for AI, especially Ethical AI, coupled with the proliferation of VC entities, indicates a continually evolving and innovative market. The primary insight is that VC entities and their associated companies are evolving to be more patient, meticulous, and ethically aware, potentially paving the way for a sturdier and more enduring VC environment in the future.

Venture Trends on September 13

Join us on September 13 to unpack these trends with general partners and limited partners from around the world.