DC venture capital scales down to $478M in Q3, the region’s lowest quarter in 2 years 

After reaching nearly $1 billion in Q1 and approaching $2 billion in Q2, venture capital in the metro area surrounding the nation’s capital cooled in Q3, falling short of even half a billion.

The most recent quarterly Venture Monitor report from PitchBook and the National Venture Capital Association (NVCA) showed DC closed 55 deals, amassing $478.3 million in venture capital. The DMV market has experienced a significant downturn in both VC investment and deals since the last quarter, which saw $1.7 billion in value across 67 deals, though e-cigarette giant JUUL raised $1.3 billion of that share.

This quarter’s investment total was the DC metro area’s lowest not only for 2024, but also for the past two years since Q3 2022. Meanwhile, the reported number of deals closed hit its lowest point in at least 10 years.

‘Wait and see’ past the DMV’s new low 

See value ($M) and deal count of venture capital investments by quarter in the Washington-Arlington-Alexandria Metropolitan Statistical over the past decade.

In an email to Technical.ly, Casey Williams, principal at local fintech-focused VC firm Fenway Summer, said that the “choppiness” in the value and number of deals has become normal for founders and younger venture capitalists like her. Williams leads the VC firm’s early-stage investments and venture build initiative, according to its website.

“I think ever since the boom of investment in 2019 and 2020, there’s been this ‘wait and see’ mentality that the ship will right itself and we’ll return to a time when cash flowed more freely and fundraising wasn’t such a slog, especially for early-stage companies,” Williams said, adding: “A focus on both strong fundamentals and growth potential is important.”

Looking at Q3’s trends, Mike Ganz, founder and CEO of Orderly, saw the prevalence of investments in AI companies but also noticed a reemergence of another sector. Orderly is in the process of a pre-seed round, its first raise.

“Just from my own experience in this raising process, the two things that jumped out … The first one is, every VC is looking for AI, right? So, you can be like, ‘it’s an AI for dogs to meet other dogs,’ and they’re like, ‘we’re in right?’” Ganz said. “And so, that’s kind of still happening. And the second thing, and this is coming for me because right now, my product is in my company, or it’s a consumer product, and [that] seems to kind of be back a little bit.”

DC left out of the DMV’s biggest Q3 deals

Like last quarter, the top deals were in IT services, healthcare and consumer products. The district itself isn’t represented in any of these deals, with all the companies being based in surrounding Maryland and Virginia counties. 

1. Forterra, based in Clarksburg, Maryland, raised $75 million in a Series B round on Sept. 10. The company uses self-driving tech to develop autonomous systems for industrial and defense purposes. An announcement called the fundraise “more than 2.5x oversubscribed.”

2. Risk management platform Sepio Systems, headquartered in Rockville, raised an additional $11 million in a Series B extension round, bringing its total funds to $48 million. PitchBook lists its closing date as Aug. 13. The cyber company’s platform conducts risk assessment for hardware, and it provides related services and products for a mix of private sector partners.

3. Arlington-based Sempre.ai raised $41.6 million in a Series A round on July 1. The tech company provides communications and infrastructure for telecom operators, first responders, government and enterprise customers.

4. RNA therapeutics developer miRecule, based in Gaithersburg, Maryland, raised $30 million on July 14. The company plans to raise a Series A soon.

5. Identity and access management platform-producing company Aembit of Silver Spring raised $24 million in a Series A round on July 29.

As always, it’s important to note: These figures may vary slightly after publication, as some deals aren’t accounted for until weeks after quarterly VC reports are published, or PitchBook may find errors in its data.

National trends impacted by federal legal action 

In Q3, the nation’s total VC value tallied $37.5 billion across an estimated 2,794 deals in Q3. This is a sharp decline from Q2, which saw $55.5 billion raised across 3,661 total deals.

The DC-based Federal Trade Commission’s challenges against mergers and acquisitions could be the cause, as they “disrupt the entrepreneurial ecosystem,” according to NVCA President and CEO Bobby Franklin.

”The result, when added to current market conditions, is leaving startups with fewer exit options and making it harder for VCs to invest in innovative new ideas,” Franklin said. “As campaign season draws to a close in the U.S., the industry is eager to work with the next presidential Administration and new Congress to right the ship and reignite American ingenuity.”

To Fenway Summer’s Williams, DC’s decline in value and deals appear on trend with the rest of the country.

“Investors are more cautious, deploying capital at a slower rate, and looking for companies that can prove stability and profitability with a clear path forward for growth,” Williams said. “DC has always been a more risk-averse region, and I think some of that mentality is contributed to a more constricted capital environment here than elsewhere.”

Ganz of Orderly predicts that Q4 will reveal how sustainable VC spending on AI actually is due to the number of investors funding AI companies — especially ones founded in early- or mid-2023. He said pre-seed startups would be raising their seed around this time. Ganz is specifically interested in the percentage of companies that will move on to their next respective VC round.

“I think, longterm, AI is not a bubble,” Ganz said. “But there is a chance that this iteration, where everything is just, ‘Put AI in our vertical SaaS’ — which is basically all AI is being used for today, for the most part — but that might be a bubble. It’s unclear to me that has staying power, and that’s actually providing real value.”