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, TechCrunch+ 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.
Some investors think exits will return in full force in 2024, but others predicted the industry would not see meaningful liquidity until 2025. Several investors expect AI investing to cool next year, and an almost equal number think the sector will continue to remain red hot, only in different ways.
Read on to see where investors expect the next venture bubble to pop next year, which startups they think will IPO first and if they expect to see more startups shutting down in 2024 than in the past few years.
How is the current economic climate impacting your deployment strategy for 2024?
Matt Cohen, founder and managing partner, Ripple Ventures: We’re adopting a more selective approach, focusing on capital efficiency (i.e. 18-24 months of runway versus 12-18 months back in 2021) as the metrics to raise the next follow-on round keep moving higher for non-AI companies (B2B SaaS).
George Easley, principal, Outsiders Fund: In terms of pace of deployment, we find the current climate attractive. We deployed rather slowly in 2021, kept it steady in 2022, accelerated in 2023 and expect to accelerate again in 2024.
Don Butler, managing director, Thomvest Ventures: We found ourselves investing both in new companies as well as in our portfolio companies at a pace that was roughly half on new companies and half on our portfolio companies. Many of our existing portfolio companies cut expenses and have now either reached breakeven (at the later stages) or have the runway needed to continue to grow well into 2025 and beyond.
We are now focused heavily on new investments next year and believe we will be at or above our historic pacing for new investments.
Larry Aschebrook, managing partner, G Squared: As liquidity pressure continues to build for private company shareholders whose exits have been held up by the backlog, we see increasing opportunity in secondary markets. Our deployment strategy flourishes in these conditions and allows us to secure quality, sought-after assets often at deep discounts to recent financings. Our focus is fixed on secondaries and will be for the duration of the year.
Lisa Wu, partner, Norwest Venture Partners: As multistage investors, we meet founders wherever they are on their journeys. In this economic climate, we’re especially interested in seed and Series A opportunities.
How will startup valuations evolve next year?
Jai Das, president, partner and co-founder, Sapphire Ventures: We will see many more recapitalizations and down-rounds in 2024. Startups that have inefficient business models and lack investors willing to support them will shut down or be sold for pennies on the dollar. Lots of seed-stage companies will also have a hard time raising Series A since investors at that stage have become much more selective.
Pradeep Tagare, head of investments, National Grid Partners: Certain sectors, such as climate tech, will continue to see valuation premiums across all stages.
Simon Wu, partner, Cathay Innovation: The bifurcation between perceived tier-one deals (typically AI-related) and “everything else” will continue. The spread is already quite large (2021 pricing on one side), while the “have-nots” can barely get a round together.
But in 2024, this will be more pronounced than ever before. Given the rapid pace of innovation around AI applications, any company that had a great 2023 might get usurped in 2024. At some point, AI-related companies that raised big rounds will have to face the music and raise another.