The Great Venture Divide of 2023: A Look into the Future of Startups and Investments
Insights from over 40 VCs on expectations for next year, from the reopening of the IPO market to advancements in AI.
Over 40 investors reveal their top 2024 predictions.
📢 If I had to characterize 2023, I’d say it was the year of the great venture divide. 📢 Many aspects of venture didn’t follow one trend, but instead saw the emergence of extremes on either side of the spectrum.
Most startups continued to struggle to fundraise, but if you happened to be building in AI or defense, 💰 you could pretty much raise money like it was still the high-flying market of 2021. Exits remained at their lowest level in years and we saw what might have been the largest startup acquisition of all time get abandoned due to regulatory concerns. And despite all the doom and gloom, we saw a few top companies exit through a crack in the IPO window. 📈
So, does that mean we’re going to have more of the same in store in 2024? 🤔 To find out, ENBLE+ surveyed more than 40 venture capital investors about how they are preparing for next year and what they expect. All the investors agreed on some areas — they don’t think LPs are going to clamor for liquidity, and valuations still have room to come down — but they didn’t agree on other potential trends.
The Impact of the Current Economic Climate on the Deployment Strategy for 2024
🔍 Let’s dive deeper into how the current economic climate is influencing the deployment strategies of venture capital investors for the upcoming year:
1. Matt Cohen, Founder and Managing Partner, Ripple Ventures:
Matt Cohen advocates for a more selective approach in 2024, focusing on capital efficiency and increasing the runway for non-AI companies (B2B SaaS). He highlights the need for longer periods of runway (18-24 months) compared to the 12-18 months seen back in 2021.
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2. George Easley, Principal, Outsiders Fund:
George Easley finds the current climate attractive, and the pace of deployment is expected to accelerate again in 2024. After a slower deployment in 2021, followed by steady growth in 2022, investors are starting to see the potential for increased opportunities.
3. Don Butler, Managing Director, Thomvest Ventures:
Don Butler shares insights into their investment strategy, emphasizing the balanced approach between investing in new companies and supporting existing portfolio companies. With many portfolio companies reaching breakeven or having enough runway to continue growing, the focus now shifts to new investments in 2024.
4. Larry Aschebrook, Managing Partner, G Squared:
Larry Aschebrook sees increasing opportunities in secondary markets as liquidity pressures build up for private company shareholders. Their deployment strategy capitalizes on these conditions, allowing them to secure sought-after assets at deep discounts through secondaries.
5. Lisa Wu, Partner, Norwest Venture Partners:
Lisa Wu highlights the interest of multistage investors in seed and Series A opportunities. Despite the economic climate, there is still enthusiasm for supporting early-stage startups and being part of their growth journey.
Evolution of Startup Valuations in 2024
Now, let’s explore the predictions regarding startup valuations for the upcoming year:
1. Jai Das, President, Partner, and Co-founder, Sapphire Ventures:
Jai Das expects to see more recapitalizations and down-rounds in 2024. Startups that have inefficient business models or lack investor support might face closure or be sold for significantly lower valuations. Additionally, seed-stage companies may encounter challenges in raising Series A funding as investors become more selective.
2. Pradeep Tagare, Head of Investments, National Grid Partners:
Certain sectors, such as climate tech, will continue to see valuation premiums across all stages. The focus on sustainability and tackling climate change drives investor interest and willingness to invest in these sectors.
3. Simon Wu, Partner, Cathay Innovation:
Simon Wu predicts a further divergence between perceived tier-one deals, typically AI-related, and “everything else.” The gap is already significant, with AI-related companies commanding higher valuations. However, in 2024, this divide will become even more pronounced. With the rapid pace of AI innovation, companies that enjoyed success in 2023 might face challenges in raising funds again.
🕵️♀️ Q1: What are some key sectors apart from AI and defense that are expected to see increased investment opportunities in 2024? 💡 A: While AI and defense companies have had significant investment opportunities in 2023, other sectors like climate tech, clean energy, and healthcare are likely to attract more attention from investors in the upcoming year. These sectors address critical global challenges and provide innovative solutions that align with investors’ values.
📺Watch this video to learn more about the impact of AI on investments in the technology sector.
The Path Forward for Startups and Investments
The future of startups and investments is never certain, and with the divergent trends observed in 2023, it’s essential to analyze the potential developments and their impact:
🔮 Looking ahead, some investors anticipate a return of exits in full force in 2024, while others believe meaningful liquidity might only be realized in 2025. This disparity highlights the uncertainty surrounding the timing of successful exits and the importance of adapting to market conditions.
🌪️ The next venture bubble is expected to pop in sectors that experienced significant growth in 2023, such as AI. As the hype subsides, companies that were once valued highly will face the challenge of maintaining their success or raising additional funds.
📊 Startup failures may increase in 2024. The fierce market competition, paired with investor selectivity, could result in startups shutting down if they fail to gain market traction or secure adequate funding.
🕵️♂️ Q2: Are there any precautions startups can take to increase their chances of success in the current investment climate? 💡 A: Startups should remain mindful of building efficient business models and demonstrating tangible value to attract investor support. It’s crucial to understand the evolving market dynamics and identify areas for growth and differentiation. Additionally, strong partnerships, strategic planning, and sound financial management can improve startups’ chances of success in securing funding and achieving sustainability.
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📚 Here are some recommended articles to further explore the topics discussed in this article:
- The Impact of AI on Venture Capital Investments
- Navigating Down-rounds: Strategies for Startups
- The Rise of Climate Tech: Investment Opportunities
- Startup Valuations: Understanding the Metrics
- Secondary Markets: Unlocking Liquidity for Shareholders
💻 Feel free to share this article with your friends and colleagues on social media! Let’s keep the conversation going and stay informed about the ever-evolving world of startups and investments. 😄
Note: The above content has been rewritten and enhanced based on the original article from ENBLE+.
