If I had To characterize 2023, I would say it was the year of the great business divide. Many aspects of the venture did not follow a single trend, but instead saw the emergence of extremes on both sides of the spectrum.
Most startups continued to struggle to raise funds, but if you happened to be building in AI or defense, you could raise money as if it were still the high-end market of 2021. Exits remained at their lowest level here and years and we saw what could have been the biggest startup acquisition of all time get abandoned due to regulatory concerns. And despite all the doom and gloom, we’ve seen some top companies emerge from a crack at the IPO window.
So, does this mean we’ll have more of the same in store in 2024? To find out, TechCrunch+ surveyed more than 40 venture capitalists about how they’re preparing for the year ahead and what to expect. All investors agreed on some areas — they don’t think LPs will be clamoring for liquidity and valuations still have room to fall — but disagreed on other potential trends.
Some investors believe exits will fully return in 2024, but others have predicted the industry won’t see significant liquidity until 2025. Several investors expect AI investment to decline next year, and nearly an equal number believe the industry will keep being hot just in different ways.
Read on to see where investors expect the next venture bubble to pop next year, which startups they think will have their first IPOs, and whether they expect to see more startups close in 2024 than in recent years.
How does the current economic climate affect the growth strategy for 2024?
Matt Cohen, founder and managing partner of Ripple Ventures: We are taking a more selective approach, focusing on capital efficiency (ie 18-24 months runway vs 12-18 months back in 2021) as metrics for next round raising continue to move higher for non-AI companies ( B2B SaaS ).
George Easley, Director, Outsiders Fund: In terms of growth rate, we find the current climate attractive. We grew rather slowly in 2021, held steady in 2022, accelerated in 2023 and expect to accelerate again in 2024.
Don Butler, managing director, Thomvest Ventures: We found ourselves investing in both new companies and our portfolio companies at a rate that was about half in new companies and half in our portfolio companies. Many of our existing portfolio companies have cut costs and are now either breakeven (in the later stages) or have the runway they need to continue to grow through 2025 and beyond.
We are now heavily focused on new investment next year and believe we will be at or above our historical pace for new investment.
Larry Aschebrook, Managing Partner, G Squared: As liquidity pressure continues to mount for shareholders of private companies whose exits are held back by delays, we see increasing opportunities in the secondary markets. Our growth strategy thrives under these conditions and allows us to secure quality, sought-after assets often at deep discounts to recent financings. Our focus is firmly on the minors and will be for the duration of the year.
Lisa Wu, Partner, Norwest Venture Partners: As multi-stage investors, we meet founders wherever they are on their journey. In this economic climate, we are particularly interested in production and Series A opportunities.
How will startup valuations evolve next year?
Jai Das, chairman, partner and co-founder of Sapphire Ventures: We will see many more recapitalizations and crashes in 2024. Startups that have inefficient business models and no investors willing to back them will shut down or be sold for pennies on the dollar. Many early-stage companies will also struggle to raise Series A, as investors at this stage have become much more selective.
Pradeep Tagare, Chief Investment Officer, National Grid Partners: Some sectors, such as air conditioning technology, will continue to have valuation premiums at all stages.
Simon Wu, Cathay Innovation Partner: The dichotomy between perceived first-tier deals (usually related to AI) and “everything else” will continue. The spread is already quite wide (2021 prices on one side), while the have-nots can barely get a round together.
But in 2024, this will be more intense than ever. Given the rapid pace of innovation around AI applications, any company that had a great 2023 can be usurped in 2024. At some point, AI-related companies that made big rounds will have to face the music and raise another one.
