Will venture capital financing for startups return?

The startup ecosystem is built on a venture capital funding cycle—newer companies get money from VC firms to fuel growth, while more mature companies go public or are acquired to make money VC firms and their investors.

However, since peaking in 2021, the cycle has slowed to a crawl over the past few years amid higher interest rates and stock market volatility.

There have been recent signs that despite the upcoming cooler autumn, the local startup market may be gaining momentum.

That’s because the second half of the cycle, which venture capitalists call the “exit” market, has seen an increase in activity.

It all started in July, when Boston-based data management startup Nasuni was acquired by private equity firms in a $1.2 billion deal. Then last week, Somerville cybersecurity firm Recorded Future was acquired by Mastercard for $2.7 billion.

And two biotech startups, Boston-based Bicara Therapeutics and Waltham-based Zenas BioPharma, raised a combined $540 million in initial public offerings last week. Bicara, which is working on cancer treatments, has already seen its stock price rise more than 30 percent. Zenas, which targets autoimmune diseases, is up 6 percent.

The value of those four deals alone exceeds the $3 billion in exit activity in Massachusetts last year, according to PitchBook data. The renewed activity may be linked to expectations that the Fed will soon cut interest rates and a modest recovery in some tech stocks.

This could be good news for startup funding, which has also fallen sharply since 2021.

Harvard Business School professor Josh Lerner, who has studied startups and VC funding for decades, said there’s a clear link between exit activity and new funding. That’s because money from IPOs and acquisitions goes back to VC fund investors, such as pension funds and university endowments, who then typically inject the money into new VC funds. Without exits, there’s less money for new startups, he said.

“This leads to a process where the freezing of exit markets can adversely affect new deals because VC groups are not confident in raising new funds,” Lerner said.

But not all market watchers are convinced that the recent activity signals a broader recovery. Despite two biotech IPOs, the IPO market remains depressed for VC-backed companies, and no local tech company has gone public since Klaviyo last fall. Acquisition activity is also well below levels seen a few years ago.

According to a study conducted by Deloitte, the greatest activity this year was recorded by startups operating in the life sciences, enterprise software and artificial intelligence applications sectors.

“There remains cautious optimism,” said B.J. Spence, a partner at Deloitte in Boston who works with companies going public. The third quarter saw a surge in exits over the past few years that wasn’t sustained, he said. “As investors continue to take a cautious approach, especially in an election year, things may not be as good as the market would like for another year or more.”

Aaron Pressman can be reached at [email protected]. Follow him @ampressman.