QUANTITATIVE PERSPECTIVES

Cleared for Takeoff?

Q1 2024
 Cleared for Takeoff?

Introduction PitchBook Data, Inc.

John Gabbert Founder, CEO
Venture capital investment is a critical driver of innovation and economic
growth, providing funding to startups with high growth potential. The VC Nizar Tarhuni Vice President, Institutional Research and Editorial
landscape has undergone significant shifts in recent years, influenced by Daniel Cook, CFA Head of Quantitative Research
ever-evolving market conditions and emerging technologies. While startups’
need for VC investment continues to outpace the supply of dollars available,
the spread of investment activity across verticals underscores shifting
investor interests. Research
In this report, we dissect the dynamics of the verticals software as a service Susan Hu Associate Quantitative Research Analyst
(SaaS) and artificial intelligence & machine learning (AI & ML) within the [email protected]
venture capital landscape. We compare the challenges, opportunities, and
investment prospects of these verticals over the past five years and evaluate Kyle Stanford, CAIA Lead Analyst, Venture Capital
the outlooks for each within the current market environment. The decline of [email protected]
VC deal activity has left many SaaS startups capital starved, while AI & ML
remains a focal point of venture dollars. The release of transformative Zane Carmean, CFA, CAIA Lead Analyst, Quantitative and Funds Research
technologies like OpenAI’s ChatGPT further fueled investor interest in AI & [email protected]
ML startups. However, our analysis suggests that early-stage SaaS
companies are still likely to outperform AI & ML companies, yet we see Miles Ostroff Associate Quantitative Research Analyst
upside not factored in due to AI & ML’s impact being still in its nascency. [email protected]
Despite a challenging IPO drought and concerns over unsustainable
consumer spending, there are signs of optimism, with job gains,
improvements in consumer sentiment, and a potential resurgence in public
listings pointing toward a resurgence in exit activity. Contact
Published on March 15, 2024 [email protected]

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completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security.
This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

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Key takeaways

• Overall, 2023 was a slow year for VC activity. The lack of capital availability continues to be highlighted by the demand/supply ratio across
all stages and sectors of VC. AI & ML has dominated total dealmaking activity, making up 35.4% of the total capital invested in VC.
• Historically, SaaS has been the most lucrative area of investment for VC investors. However, following the release of ChatGPT, AI & ML has
taken center stage, with valuations of private companies in the space growing faster than SaaS company valuations.
• The poor exit environment in the last two years led to a buildup of paper valuations within each sector that is roughly three times that of
the public market capitalization of VC-backed companies that publicly listed in the last five years, signaling a significant backlog of capital
waiting to exit and the overweight balance of value held within private markets.
• Encouraging macroeconomic conditions alleviate some uncertainty in the private markets and set an optimistic tone for 2024. Public
companies that have recently completed an IPO have started to see a pickup in revenue growth and valuations.

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Boarding has started

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VC demand is outpacing supply, with investment activity not keeping

pace with high proportion of startups seeking capital.
Estimated startup demand for VC investment relative to supply

3.0x
2.8x The capital demand/supply
More demand
than supply of ratio estimates the amount of
2.5x VC dollars capital demanded by US
startups as a ratio of supply
broken out by stage.
2.0x

1.6x Demand is calculated by

estimating how much capital
1.5x 1.5x
companies will raise in their
next round and spreading that
1.0x amount over the historical
1.0x is neutral. probability of raising in the
future. Capital supply uses
0.5x observed VC deal value.
More VC
dollars
supplied than
0.0x estimated
2019 2020 2021 2022 2023 * 2024* demand

Early-Stage Index Late-Stage Index Venture-Growth Index

Source: PitchBook • Geography: US • *As of February 29, 2024

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SaaS has been a staple of many VC investment portfolios in the last decade, but with the decline in
VC deal activity, SaaS startups’ need for capital has been largely unmet.
SaaS VC Dealmaking Indicator by quarter SaaS capital demand/supply ratio by quarter

100 5x

90

80 4x
74.3 4.0x
70 65.0

60 3x
62.9
50.0 is neutral.
50
2.1x
40 2x
30
1.5x
20
1x
10 1.0x is neutral.
0
0x
2019 2020 2021 2022 2023 *
2019 2020 2021 2022 **
2023

Early-Stage Index Late-Stage Index Venture-Growth Index Early-Stage Index Late-Stage Index Venture-Growth Index

Source: PitchBook • Geography: US • *As of December 31, 2023

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While AI & ML has remained less susceptible to changes in historical trends, outsized deals like
OpenAI’s $10 billion late-stage round greatly impact the “supply” of capital.
AI & ML VC Dealmaking Indicator by quarter* Aggregate AI & ML capital demand/supply ratio*

100 3x
Supply is inflated from
outsized deals like OpenAI’s
90
$10 billion late-stage round.
80 OpenAI is in both the AI & ML
73.1 and SaaS buckets.
70 71.5 2.0x
2x
60
52.9
50
50.0 is neutral.
40

30 1x
1.0x is neutral.
20

10

0
2019 2020 2021 2022 2023 0x
2019 2020 2021 2022 2023

Early-Stage Index Late-Stage Index Venture-Growth Index

Source: PitchBook • Geography: US • *As of December 31, 2023

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VC investors appear to be pivoting. Despite being a slow year for dealmaking, the share of VC
dollars invested in AI & ML accelerated to 35.4% in 2023…
AI & ML VC deal activity by quarter AI & ML VC deal value ($B) by segment and share of all VC deal value

$25 1000 $50

900 35%
$40
$20 800

700
$30
$15 600 22% 22% 22%
21%
358 18%
500
$20
$10 400

300 $10

$5 200
$0
100
2018 2019 2020 2021 2022 2023*
$0 0
2017 2018 2019 2020 2021 2022 2023 2024 ** AI & ML semiconductors Autonomous machines
Horizontal platforms Vertical applications
Deal value ($B) Deal count Share of total VC deals

Source: PitchBook • Geography: US • *As of January 31, 2024 • **As of February 28, 2024

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…with late-stage unicorn valuations rebounding faster than VC’s previous darling, SaaS. Since the
launch of ChatGPT in late 2022, AI & ML unicorns have outperformed on paper.
Morningstar PitchBook Unicorn Index returns by select sector* Morningstar PitchBook Unicorn Index returns by select sector

70%
25%

60%
20%

50% 15% ChatGPT launched on

November 30, 2022.
40% 10%

30% 5%

20% 0%

10% 5%

0% 10%
Mar 2021 Sep 2021 Mar 2022 Sep 2022 Mar 2023 Sep 2023 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2022 2023 2023 2023 2023 2023 2023 2023 2023 2023 2023 2023 2023 2024 *
AI & ML SaaS
AI & ML SaaS
Sources: Morningstar, PitchBook • Geography: Global • *As of January 31, 2024

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Top valuations of early-stage AI & ML startups have seen an uptick since ChatGPT’s release,
though not to the extent seen in 2021. Growth of top-decile SaaS valuations has been subdued.
Rolling six-month average top-decile pre-money valuation multiples for new deals by select vertical, rebased to December of starting year

3.0x
We rebased the top-decile pre-money valuations of each cohort to AI & ML: 2.9x
2020 to 2022
1.0 to track how the top end of each vertical has seen valuations SaaS: 2.7x
inflate. AI & ML has taken off, but not to the extent that we saw
2.5x from 2020 to 2022.

2.0x

1.5x AI & ML: 1.5x

2022 to 2024*
SaaS: 1.1x
1.0x

0.5x
Dec 4 8 12 16
Months since start of cohort in December

Source: PitchBook • Geography: US • *As of February 28, 2024

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Expected returns for each vertical

Despite the focus on AI & ML, our analysis still suggests that early- are based on an aggregation of the
expected returns for the underlying
stage SaaS companies are likely to outperform the average vertical…
companies. Company-level returns
Annualized expected returns relative to the cross-vertical average* are determined from the exit-type
predictions and historical returns by
Cross-vertical average: +23.1%
series. For more information, please
SaaS +5.5% see our VC Emerging Opportunities
report and the VC Exit Predictor
Cybersecurity +1.1% methodology located in the
PitchBook Help Center.
Gaming +0.8%
The cross-vertical average return of
AI & ML +0.4%
23.1% is provided as a historical
SaaS companies are expected to baseline value and should not be
Fintech +0.2% outperform the cross-vertical average by
relied on as a forecast. This baseline
a net 5.5% on an annualized basis.
Climate tech +0.0% value is derived from the average of
deal-level return data from 2000 to
Mobility tech -0.7% 2021 and can vary significantly
based on the environment at any
Agtech -2.3%
given time. The relative returns for
Foodtech -2.3% each vertical, however, are a more
robust forward-looking measure
IoT -2.7% because they are unaffected by
factors that impact the entire VC
Underperform Outperform ecosystem, such as interest rates,
available funding, and economic
Source: PitchBook • Geography: Global • *As of December 31, 2023 growth.
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To assess the uncertainty of the

relative expected returns shown on
…and simulations of exit outcomes provide evidence that bets the prior page, we ran 10,000
placed in early-stage SaaS may lead to better payoffs. Monte Carlo simulations that
randomly generated exit outcomes
Distributions of relative annualized expected returns based on Monte Carlo simulations* for each company based on the exit
probabilities from the VC Exit
Predictor. At each iteration, we
then used the random exit
outcomes to calculate the return
for each vertical. We assumed that
exit outcomes between pairs of
companies were positively
correlated—the degree to which
was based on a single common
factor, as well as factors for each
vertical.

This analysis suggests that there

are three tiers of verticals based on
expected performance. SaaS is
expected to outperform with high
confidence, while agricultural tech
(agtech), foodtech, and Internet of
Things (IoT) are expected to
underperform. Meanwhile, the
remaining verticals form a middle
tier wherein the relative
Source: PitchBook • Geography: Global • *As of December 31, 2023 performance outcomes are much
12 PITCHBOOK QUANTITATIVE PERSPECTIVES less certain.
 CLEARED FOR TAKEOFF?

Into the clouds

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Public equity investors appear to agree with SaaS’s prospects. VC-backed SaaS companies that
recently completed an IPO are trading at higher multiples than AI & ML in the public markets.
Price/sales multiples of VC-backed IPOs in SaaS and AI & ML

45x

40x

35x

30x Five-year rolling window of VC-

backed IPOs. For example, 2019 data
25x points will include IPOs from the
years 2014 to 2019.
20x

15x
10.0x
10x
6.6x
5x

0x
2019 2020 2021 2022 2023 2024 *

AI & ML SaaS

Source: PitchBook • Geography: US • *As of February 28, 2024

14 PITCHBOOK QUANTITATIVE PERSPECTIVES Note: Five years of inclusion in indexed constituents

 CLEARED FOR TAKEOFF?

However, crimped valuation multiples led to an IPO drought in 2022 and 2023. A record number of
VC-backed companies are looking for exits…
VC company count by stage Public listing count by stage of last VC financing round

60,000 There are currently more than 350

54,000 VC startups in the US
ecosystem. The more mature the
50,000 company’s stage, the more likely the 300
company is to publicly list.
250
40,000

200
30,000

150
20,000
100
10,000
50

0
* 0
2020

2021

2022

2023

2024
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 *

Pre-seed/seed Early-stage VC Late-stage VC Venture growth Early-stage VC Late-stage VC Venture growth

Source: PitchBook • Geography: US • *As of February 28, 2024

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…but even in normal times, public listings are rare. The last two
years have been the worst over the last decade...
Share of VC-backed companies that publicly listed by stage

7%

6%
Based on our estimates for the
universe of VC-backed
5% startups, we compare the
proportion of firms that
4% publicly listed each year. By
averaging the proportion from
2015 to 2019, we next estimate
3%
the number of public listings
there would be under “normal”
2% exit conditions.

0.9%
1%
0.2%
* 0.1%
0%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 *
Early-stage VC Late-stage VC Venture growth

Source: PitchBook • Geography: US • *As December 31, 2023

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…leading to a buildup of paper valuations. The market cap of companies that have completed an
IPO in the last five years is roughly one-third of aggregate private market valuations.
SaaS market cap of recent IPOs versus aggregate post-money AI & ML market cap of recent IPOs versus aggregate post-money
valuation of still-private, VC-backed firms valuation of still-private, VC-backed firms

$1,200 $1,200

$1,000 $1,000

$800 $800

$600 $600

$400 $400

$200 $200

$168 $179 $547 $313 $629 $885 $255 $1,173 $329 $1,115 $83 $149 $253 $217 $279 $525 $125 $678 $260 $721
$0 $0
2019 2020 2021 2022 2023 * 2019 2020 2021 2022 2023 *

Market cap ($B) Aggregate post-money valuation ($B) Market cap ($B) Aggregate post-money valuation ($B)

Source: PitchBook • Geography: US • *As of December 31, 2023

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A record number of SaaS companies were left out of new offerings, and they are now facing
challenges in navigating growth while private.
SaaS VC company count by stage SaaS 2023 public listing count versus shortfall based on 2015-2019
average public listing rate by stage*

14,000 0 5 10 15 20 25

12,000 1 8

Early-stage VC
10,000

8,000
4 10
6,000
Late-stage VC

4,000

2,000 4 16

Venture growth
0
*
2020

2021

2022

2023

2024
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Pre-seed/seed Early-stage VC Late-stage VC Venture growth Actual public listing count Unfilled listing count based on historical average

Source: PitchBook • Geography: US • *As of February 28, 2024

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Despite hype in AI & ML VC deals, exit activity has fallen short of expectations.

AI & ML VC company count by stage AI & ML 2023 public listing count versus shortfall based on 2015-2019
average IPO rate by stage*

9,000 0 2 4 6 8 10

8,000 6

7,000
Early-stage VC
6,000

5,000
6 1
4,000
Late-stage VC
3,000

2,000
2 6
1,000
Venture growth
0
*
2020

2021

2022

2023

2024
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Pre-seed/seed Early-stage VC Late-stage VC Venture growth Actual public listing count Unfilled listing count based on historical average

Source: PitchBook • Geography: US • *As of February 28, 2024

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Two months into 2024, IPOs have not taken off, but there is optimism for a resurgence. Several
notable VC-backed companies are targeting an IPO this year if the macro environment allows.
2024 public listing count versus shortfall based on 2015-2019 average IPO rate by stage and select vertical*

0 5 10 15 20
Early-stage VC

AI & ML 5

SaaS 8

AI & ML 7
Late-stage VC

SaaS 14
Venture growth

AI & ML 8

SaaS 20

Actual public listing count Unfilled listing count based on historical average

Source: PitchBook • Geography: US • *As of February 28, 2024

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Clear skies ahead?

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The above-trend real GDP in 2023 brings the US closer to a successful soft landing. GDP growth
forecasts are muted, but recession fears have noticeably receded.
Real GDP compared with trend following the global financial crisis (GFC)*

$24
Recession
$22

$20

$18

$16

$14

$12

$10 10%
34.8% Q4 2023
3.3% 5%
0%
-5%
-28.0% -10%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 E

Real GDP ($T) Post-GFC trend Next-four-quarter forecast Annualized quarterly growth rate

Sources: Bureau of Economic Analysis, Wall Street Journal Economic Forecasting Survey • Geography: US • *As of December 31, 2023

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Strong job gains have driven the unemployment rate back to the lows of 2019. While positive, job
creation has cooled to the average growth of the pre-pandemic decade.
QoQ job creation change* Unemployment rate*

12%
6%
11.0%

10%
4%

2% 8%

Average 2010-2019
0%
6%

-2%
4%
3.7%
-4%
3.5%
2%
-6%

-8% 0%
2010 2012 2014 2016 2018 2020 2022 2010 2012 2014 2016 2018 2020 2022

Source: Bureau of Labor Statistics • Geography: US • *As of December 31, 2023

23 PITCHBOOK QUANTITATIVE PERSPECTIVES

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Consumers are still wary, but sentiment has improved over 2022 and early 2023…

University of Michigan Consumer Sentiment Index*

125

100
Median: 88.3

75 69.7

50

25
1990 1995 2000 2005 2010 2015 2020

Source: University of Michigan • Geography: US • *As of December 31, 2023

24 PITCHBOOK QUANTITATIVE PERSPECTIVES

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…and YoY US retail sales growth continues to trend positive. However, a decline in the personal
saving rate and rising delinquency rates indicate unsustainable consumer spending.
YoY retail sales by month Personal saving rate and share of balance 90+ days delinquent by loan
type*

50% 30%

40% 25%

30% 20%

20%
15%

10%
10%

0%
5%

10%
0% E
2003 2006 2009 2012 2015 2018 2021
20%
2020 2021 2022 2023* Personal saving rate Mortgage Credit card

Sources: Census Bureau, Federal Reserve Bank of St. Louis, Federal Reserve Bank of New York • Geography: US • *As of December 31, 2023

25 PITCHBOOK QUANTITATIVE PERSPECTIVES

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Recent IPOs provide a proxy for business fundamentals of late-stage VC-backed companies. SaaS
revenue growth has slowed from 2021...
SaaS revenue growth dispersion of VC-backed IPO companies by quarter

80%

70%

60%

50%

40%

30%

20%

10%

0%

-10%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021 2022 * 2023 *
Top and bottom quartile range Top decile Median Bottom decile

Source: PitchBook • Geography: US • *As of December 31, 2023

Note: VC-backed IPOs included for five years. Limited Q4 2023 data: 25 of 38 companies have reported.
26 PITCHBOOK QUANTITATIVE PERSPECTIVES
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…and AI & ML has followed a similar trend. Despite the perceived potential of this vertical, we have
yet to see revenue growth figures pick up meaningfully.
AI & ML revenue growth dispersion of VC-backed IPO companies by quarter

140%

120%

100%

80%

60%

40%

20%

0%

-20%

-40%

-60%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021 2022 * 2023 *
Top and bottom quartile range Top decile Median Bottom decile

Source: PitchBook • Geography: US • *As of December 31, 2023

Note: VC-backed IPOs included for five years. Limited Q4 2023 data: 13 of 26 companies have reported.
27 PITCHBOOK QUANTITATIVE PERSPECTIVES
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In response to declining revenue growth, tech layoffs indicate a continuing stance to cut costs.
Late-stage startups with sustainable business models are more likely to have a successful IPO.
Tech layoff count by month Monthly tech layoff count by stage

80,000 120 40,000

70,000 35,000
100
60,000 30,000
80
50,000 25,000

40,000 60 20,000

30,000 15,000
40
20,000 10,000

20
10,000 5,000

0 0 0
2022 2023 2024* 2022 2023 * 2024*
Layoff count Magnificent Seven layoff count Company count VC-backed Post-IPO (excluding Magnificent Seven)

Source: Layoffs.fyi • Geography: US • *As of March 7, 2024

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Our Emerging Technology analyst team has identified several IPO candidates in the pipeline.

2024 IPO pipeline for VC-backed startups*

Company Segment Total raised Last known valuation

Databricks AI & ML $4.2 billion $43.2 billion

Epic Games Gaming and AI & ML $6.1 billion $30.0 billion

Klarna SaaS and Fintech $4.7 billion $6.7 billion

Rubrik Cybersecurity and SaaS $1.2 billion $4.0 billion

FBN Agtech and SaaS $939.3 million $3.8 billion

Astera Labs AI & ML $235.0 million $3.2 billion

Generate Biomedicines Biopharma and Generative AI $673.0 million $2.0 billion

Source: PitchBook • Geography: Global • *As of December 31, 2023

29 PITCHBOOK QUANTITATIVE PERSPECTIVES Note: This is a select list that we identified from the report.
Additional research
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