As we head into the final quarter of 2024, the private equity landscape continues to evolve with both challenges and opportunities for investors. Key economic indicators - interest rates and inflation - remain top-of-mind for market participants, especially following the Federal Reserve's recent 50 bps rate cut. While the election year adds volatility, the historical data shows markets, on average, rise 7% regardless of political outcomes.
Premiums Are Making a Comeback
A key trend that has emerged throughout 2024 is the increasing proportion of closed deals trading at a premium to their last funding round (LFR). From a mere 2% in Q4 2023, premiums rose to 17% in Q2 2024, surging to 36% by Q3 2024. This shift reflects growing confidence, with more deals closing at higher valuations.
Continued Pickup in New Investor Signup Growth
While the rate cut has reinforced a risk-on sentiment, it's important to note that venture capital secondaries and new investor acquisitions were already on an upward trajectory before this monetary policy shift. MoM acquisition rates for new investors have consistently outperformed the previous year’s baseline, driven by strong liquidity needs in private markets and investor appetite for high-growth sectors like AI.
The rate cut accelerated this trend by lowering the cost of capital, making the market environment even more favorable, but the foundation for this growth had already been laid well in advance. This aligns with the trend we saw even before the cut: the willingness of investors to engage in higher-risk assets had been growing steadily, reflecting a deeper conviction in future economic performance.
Retail Investors Reshaping Private Markets
Retail investors are now, more than ever, making a significant impact in the venture capital secondaries space. In the first half of 2024, secondary transaction volumes surged 72% year-over-year to $69 billion, with LP-led VC secondaries driving a 135% increase.
Even in the face of a broader slowdown in global venture capital funding—down 16% quarter-over-quarter to $66.5 billion—the secondary market remains resilient. Q3 2024 continued the momentum, and full-year projections suggest secondary market volumes will reach $137 billion.
Retail participation is quickly becoming a cornerstone of the private markets, with major players like BlackRock and Apollo developing products tailored to the risk appetites of this growing class of investors. The last quarter of 2024 could mark a pivotal shift in how private markets plan to continue to operate, with retail capital playing a bigger role than ever before.
Looking ahead, the venture capital and private equity landscape seems ready for further shifts, with retail investors continuing to gain ground. While there will be challenges—particularly in managing the balance between liquidity and long-term investment strategies—the outlook remains positive. Additionally, with the potential for continued economic support from central banks, such as lower interest rates, and strong demand for high-quality private assets, the venture capital secondaries space will likely continue to flourish into 2025.
Not all pre-IPO companies will go public or be acquired, and not all IPOs or acquisitions are or will become successful investments. There are inherent risks in pre-IPO investments, including the risk of loss of the entire investment, illiquidity, and fluctuations in value and returns. Investors must be able to afford the loss of their entire investment.
The Zen 10: Q3 2024 Industry Trends
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