Road to Next
Technology: Upswing at the outset
With 2024 off to an optimistic start, emerging tech is enjoying strong dealmaking activity despite recent market volatility. For example, segments like health and the emerging field of InsurTech seem to be defying market caution. In this quarter’s Road to Next, we explore the enduring momentum and evolving dynamics of these sectors in the face of broader market trends.<br><br>Four things to know now:
Q2 2024
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While artificial intelligence (AI) captivates media, digital health and wearables show dealmaking resilience despite volatile venture financing.
Smaller-scale deal volume points to emerging tech ramping up in financing volume growth rates.
Financing metrics suggest deal sizes and valuations remain prone to market flux and investor concerns but have seen some correction.
Valuations have stayed more resilient in late-stage VC only, likely due to outliers in key verticals, especially AI.
Heather Gates, Audit & Assurance Private Growth leader
A common theme uniting many of these emerging tech segments is the search for funding technical innovations that can quickly lead to efficiency and cost savings.
Trending this quarter
AI dominates, but other segments attract steady dealmaking
The global venture market has slowed, but expansion-stage dealmaking in emerging tech is defying that trend line in aggregate deal count and value. The healthy pace of expansion-stage dealmaking is more promising than deal value tally. At the expansion stage, multibillion-dollar financings skew totals—shown in the surge of the average financing size to a record high. The median deal size remains below the 2018–2022 peaks, suggesting the influence of outlier transactions. Valuation figures followed similar trend lines, except for the all-time high of the median pre-money valuation for Q1 2024. This suggests that expansion-stage valuations can remain strong for emerging tech companies given their growth prospects, level of competition for exposure by investors, market position, and more.
Geographic diversity remains amid coastal footholds
Outlier transactions in emerging tech segments seem to skew in deal value in specific urban areas. For example, Nashville’s few 2023 deals drove nearly $600 million in expansion-stage financing. Hence, comparing metro areas’ deal counts in emerging tech can shed light on the ecosystem’s geographic diversity. By sorting top metro areas by overall tallies in 2023, a broad array stands out. Entrenched expansion-stage ecosystems with developed investor bases and talent—e.g., Bay Area, New York, or Southern California—show up, but shortly thereafter, smaller but tech-centric hotbeds—e.g., Seattle, Denver, and Philadelphia—are revealed.
Analyzing current exits and forthcoming liquidity for emerging tech
We do not expect substantial liquidity for most of emerging tech’s key segments. Amid the decline in liquidity for the US startup-to-growth-stage ecosystem during the recent market volatility, emerging tech also saw exits decline from a 2021 high. Thus far in 2024, only AI is seeing substantive exit volume. That said, the handful of exits that have occurred in advanced manufacturing, AgTech, InsurTech, and augmented reality and virtual reality (AR/VR) also hints at a broadening of liquidity options for emerging tech expansion-stage companies.
$8.9B
growth by Tech Industry Q1
56 deals
in digital health
37%
Invested by nontraditional firms
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