It was a painful post-pandemic slump for tech, as fundraising and dealmaking tumbled far from their 2021 heights. By year’s end, however, the market seemed to have found its bottom, and investors eagerly awaited a revival in 2024.
So far, the year looks promising: VCs are armed with record levels of dry powder, and a backlog of high-quality tech companies are eyeing public markets. Tech deal value surged to $125B in Q1 2024, up from $92B in Q1 2023.
In public markets, the recovery was boosted by IPOs from Reddit, Astera Labs, and Ibotta, Inc. Investors are closely watching Stubhub and Stripe, both rumored to be eyeing public markets later this year.
Now, the big question for tech investors and industry watchers is, what can the year’s early activity tell us about the deals to come?
In April at Jefferies’ 2024 Private Internet Conference, “In the Age of AI,” Nicole Quinn, a partner at Lightspeed Ventures focused on consumer technology, discussed opportunities in the sector, how AI is reshaping tech companies, and where consumer brands fit into the equation.
There’s a lot of enthusiasm in the tech sector. Is that translating to enthusiasm around the IPO market? Has Reddit changed everything?
Reddit has definitely changed everything. It showed us that there may be more liquidity than expected this year, through IPOs and M&A.
It’s been a quiet couple of years. Companies sat on their hands – even really high quality companies, with strong growth and revenue. Now, investor appetite is back, and companies are ready to come out and raise money.
You work with a lot of great consumer brands. Do you expect them to access public markets, too?
I certainly expect consumer companies to pursue IPOs at some point. They have predictable and revenue streams from subscription customers, which attracts investors. Many of them are profitable, too.
For now, I think many consumer brands will look to private markets or M&A first to generate liquidity. Ultimately, they are building sustainable businesses, achieving profitability, and when the time is right, public markets will reward that.
How is AI helping companies move towards profitability?
I’ve been bullish on AI for a long time. At Lightspeed, we’ve invested $1.2 billion in AI across 53 companies – and we’ve been making those investments for a decade.
I’m most excited about AI-native companies, but to your point, all businesses can leverage AI to support profitability. In customer service and operations, companies don’t need huge teams. There are countless tools available to make these functions easier and cheaper.
Does it change the CAC (customer acquisition cost) equation? There’s been concern about rising CAC in the consumer internet sector recently.
Companies are thinking outside the box with marketing, and that’s very exciting. You’re absolutely right that for businesses like Facebook and Google, customer acquisition costs rose over the last few years. It is companies that have grown organically and virally through incredible products, ambassadors, and outside-the-box thinking that have performed exceptionally well – and we expect that to continue.
Regarding AI: we’re still in the early innings. As these tools develop, I do expect less paid acquisition, and that’s great for these consumer businesses.
Over the last several years, it has been harder for companies to raise money from venture capital. Business models and financials are more scrutinized. As an investor, how do companies give you the comfort to finally sign a term sheet?
I’m an early-stage internet investor, so I’m an optimist. I’m so pleased with the changes companies have made in recent years. The fundraising environment got tight, and founders said, “we need to be self-sufficient.”
When companies come to market this quarter, they’re more attractive than ever before. They always had plenty of growth, but the margins weren’t there. Now, they’re showing numbers that investors love.
At the same time, we still want an exciting product. We still want companies to be delighting their customers. When you can pair that with a sustainable business – that’s when we’re excited to invest.