The seal of the Board of Governors of the United States Federal Reserve System is displayed in the ground at the Marriner S. Eccles Federal Reserve Board Building in Washington, Feb. 5, 2018.Market analysts continue to argue about whether the U.S. economy is headed for a soft landing, hard landing or no landing. Well, the hard landing is already here, it’s just in private markets.
VC investments have fallen as well. In the last quarter of 2021, there were 4,875 VC investments totaling $97.5 billion. In the second quarter of this year, the totals had dropped to 3,108 and $55.6 billion — declines of 36% and 43%, respectively.The U.S. private equity market conditions have been affected similarly. In 2021, for example, there were 1,893 PE-backed company sales totaling $828 billion, and in the first half of 2024 those had declined to 212 exits totaling $141.4 billion.
The Fed’s decision to lower rates this month may increase private company values marginally. Interest rates will, however, remain higher than they were two years ago for the foreseeable future. Private company owners, including VC and PE firms, will have to adjust to higher rates, lower returns, and difficult company sale conditions — all of which will initially result in fewer investments in emerging companies, reduced innovation and less hiring.