I recently caught up with a friend working at an investment firm. He’s been wondering when venture capital will escape its downturn. Many factors are contributing to the downturn. I shared two things I think need to happen: venture capitalists need to be able to sell companies to public market investors, and those companies need to be received well by public markets.

IPO activity and performance are important. Venture capital investors need (1) overall stock-market sentiment and direction to be positive (investors are in a buying mood) and (2) technology IPOs to perform well (not tank). If these two things happen, we’ll likely see more IPOs, and the venture capital industry could be on an upswing again.

As of the writing of this post, stock market sentiment is positive, and the direction of the market has been up (disclaimer: this could change at any moment). The NASDAQ Composite Index, as of today, is ~15,500. For context, the all-time closing high for this index was 16,057 on November 19, 2021. So we’re ~3.5% below the all-time high. This is encouraging, especially when you consider that the index was ~10,500 at the beginning of 2023.

The missing piece, though, is technology IPO performance. I followed the most recent high-profile technology IPOs, those of Klaviyo and Instacart (see here and here). Both companies went public in September 2023. Today I checked to see how they’re performing. Both are trading near the lowest levels at which they’ve traded as public companies and below where their IPOs were priced. Both companies priced at $30. As of this writing, Instacart is trading at $24.80, which is 17.3% below the IPO price. Klaviyo is trading at $24.74, or 17.5% below IPO price. During that same period, the NASDAQ went from ~13,500 to ~15,500, an increase of 14.8%. The performance of either company’s stock could change anytime, but as of today it hasn’t been great.

This is something I’ll keep an eye on. I suspect these and other factors will be key to venture capital’s downturn changing course.