The venture capital freeze that began in late 2022 appears to be ending. After eight consecutive quarters of declining investment, Q4 2024 is showing the first sustained uptick in both deal volume and valuations.
What Changed
Several factors are contributing to renewed investor optimism. Interest rates have stabilized. AI companies are demonstrating real revenue. And many startups that survived the downturn have emerged leaner and more focused.
"The companies still standing have proven their resilience," says venture capitalist Sarah Park of Sequoia Capital. "They've cut costs, found product-market fit, and are actually building sustainable businesses."
AI Leads the Way
Not surprisingly, artificial intelligence startups are capturing the lion's share of investment dollars. But unlike the 2021 boom, investors are now demanding clear paths to profitability and defensible competitive advantages.
"We're back to fundamentals," explains partner at Andreessen Horowitz. "Great team, real technology, clear market need. The party round era is over."
Valuations Reset
Startups raising today are accepting valuations 30-50% lower than their 2021 peaks. This reset, while painful for founders, is creating healthier cap tables and more realistic growth expectations.
The correction has also reduced the "zombie unicorn" problem—companies valued at $1 billion but unable to raise at that price or grow into it.
What Founders Should Expect
The recovery is real but will feel different from previous booms. Due diligence is thorough. Term sheets favor investors. And growth at all costs has been replaced by efficient growth as the primary metric.
For founders who can adapt to this new reality, opportunities abound. Competition is reduced, talent is available, and investors are writing checks again—just more selectively than before.
