A report released by PitchBook-NVCA on Thursday indicates that U.S. venture capital investors remain cautious in their deal-making amidst economic uncertainty. The report shows that a total of approximately $37.5 billion worth of deals were completed in the third quarter, marking a nearly 32% decrease compared to the previous quarter. This highlights the challenges faced by the venture capital industry, despite the robust upward momentum in the U.S. public markets.

Limited liquidity has prompted investors to negotiate stricter terms with startups, leading many companies to delay fundraising until conditions improve.

The report underscores the challenges in the venture capital sector, with the focus consistently on large-scale financing for artificial intelligence companies. The report states, "Artificial intelligence companies have garnered the most attention in the venture capital space."

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Despite the slowdown in deal activity, the Federal Reserve's interest rate cuts could stimulate deal-making. PitchBook venture capital analyst Emily Zheng said, "Although a 50 basis point cut is not enough to kick-start the venture capital industry, it is a step in the right direction."

The recovery of the IPO market may provide investors with more exit opportunities, further accelerating venture capital deals.

Longer Time in Private Hands

Leading startups such as Stripe, OpenAI, and SpaceX have chosen to remain private for longer periods, offering employees liquidity through additional stock issuance rather than tapping into the public markets. Emily Zheng said, "The secondary market is a win-win. Companies can stay private for a longer time, and investors seeking liquidity can also get it."

The increasing appeal of private assets may also encourage some companies to delay IPOs, especially if they can secure ample funding from private market investors.

Forge Global (FRGE.US) Head of Analytics and Investment Solutions Howe Ng said, "Democratization is coming, the private market will continue to open up, and this new asset class will continue to exist."