Many VCs and startups will be happy to see 2023 arrive. It’s been a year in which uncertainty, rising interest rates, and slow or non-existent growth have eroded investor confidence. VC and startup funding is down from the highs of 2021 and 2022, meaning uncertain times for many founders, with shorter runways and lower valuations. Funding was possible for strong companies in the right sectors, but much more than in previous years due to our focus on due diligence and demonstrating product-market fit, growth and a clear path to profitability. It took a long time.
But you can’t become a venture capitalist without an optimistic outlook, and you’ll find a bigger, more positive outlook. This year’s funding remains the third highest on record after 2021 and 2022, and the combination of lower valuations and higher standards means this could be a great vintage. . I have personally been busy with his second round of funding for Concentric and have been encouraged by his positive stance towards the European ecosystem. Despite current headwinds, Europe is now firmly on the radar for LPs and VCs around the world. Therefore, the long-term outlook is strong.
So, what does next year have in store for 2024? Here are my predictions.
1. Wash away traditional growth deals
VC and startup funding will recover, but that will likely not happen until 2025. Low growth and global instability are likely to persist over the next 12 months and will continue to impact valuations and investor confidence. This year is also an election year in the UK and US, which could bring further turmoil and uncertainty.
Many companies that did not raise money this year will need to do so in 2024. As business model issues become apparent, especially among the 2020 Series B cohort, we will see hefty price hikes along with some losses. My guess is that probably about 2,000 US growth-stage companies will reprice next year, creating a ripple effect across the global venture sector and causing pain for many founders and venture funds. right.
The sooner this happens, the better for the ecosystem. This is to clean the slate and bring valuations back to reality ahead of future growth and investment. Many investors have already mentally written off their losses and moved on. Ventures are risky and there will always be vintages with a lower success rate, but over 20 years you can still make a good profit. The U.S. economy is holding up better than expected a year ago, which is helping some investor activity hold up. This gives many investors confidence that VC will recover in 2025.
2. ETFs boost Bitcoin BTC startups
One bright spot is Bitcoin, which looks poised for another bull run next year, but no one knows where the price will end this time. Approval of the first Bitcoin ETF is expected to occur in early 2024, making it easier for traditional investors to gain exposure to the digital currency. This could enhance liquidity by up to 10x, reduce the impact of Bitcoin whales on the market, and lead to lower price volatility.
It would also open the door for banks and insurance companies to hold Bitcoin to fill holes that currently exist on their balance sheets as bond prices decline. This could create significant opportunities for the subsector of Bitcoin startups that are developing solutions that support and facilitate the financialization of Bitcoin through insurance, trading, or security solutions. A promising example is Anchorwatch, which combines insurance with an enterprise-grade storage solution. This allows businesses to keep their BTC insured on their balance sheets in a way that reduces the risk of theft or loss of private keys. The other is Chainaloss, a blockchain data platform that enables businesses to engage with Bitcoin by enabling compliance management and auditing practices.
3. AI hype gives way to viable use cases
When it comes to hype, 2023 has been all about artificial intelligence (AI), specifically generative AI, and large-scale language models (LLMs) such as ChatGPT, which launched in late 2022. More than one in four dollars is invested in U.S. startups. According to Crunchbase, his investment in AI companies has more than doubled from the previous year. This was largely driven by several big deals, including his $10 billion investment from Microsoft MSFT in OpenAI and his $4 billion investment from Amazon AMZN into Anthropic, which is developing an AI-powered chatbot called Claude. it was done.
Thousands of words have been written about how AI tools can increase efficiency, drive automation at scale, and potentially replace human workers. But like past hype around blockchain and cryptocurrencies, “peak hype” for AI may already be over. With the innovation of VC funding models, i.e. GPU debt funds, we no longer see his 100 million share pre-seed rounds for companies like Mistral.ai, where capital is primarily used to pay for computing power. Ta. Next year will see a reality check on AI as operating costs for LLMs begin to rise and litigation and regulation arises regarding ethical and responsible use of data privacy and protection, intellectual property, and other issues. There is a possibility. .
At the same time, while 2023 brought a lot of talk about AI, in 2024 we will start to see simpler but more specific use cases. For example, medical diagnosis, treatment optimization, patient management, etc. Fraud detection, algorithmic trading, and credit scoring in finance. Predictive maintenance and quality control in manufacturing. We are also committed to addressing environmental issues, from energy efficiency to wildlife conservation. The big problem is addressing the data challenge. How to access enough data and comply with regulations in a way that enables these use cases.
4. Smart data-driven manufacturing
A quiet revolution is taking place in the manufacturing industry, which has traditionally lagged behind digital transformation. As manufacturers seek to reduce costs, improve sustainability, and speed up supply chains, sophisticated, low-maintenance solutions are emerging that give manufacturers real-time visibility into their operations. Companies like Thingtrax and greyparrot.ai are combining IoT devices with computer vision, AI, and edge to avoid the need for cumbersome IT infrastructure. This approach democratizes access to business intelligence to increase efficiency, improve decision-making, and reduce waste through real-time tracking and demand forecasting.
Such innovations and potential addressable markets have made manufacturing technology an increasingly attractive target for venture capital, with funding increasing by 46% in the 12 months to September 2023. Governments, like British Prime Minister Rishi, for example, recognize the huge potential. Mr Sunak recently announced his Advanced Manufacturing Plan to boost investment in UK manufacturing. This includes £4.5bn of funding to support strategic sectors such as technology and digital infrastructure. In 2024, there are bright spots for innovation.
5. Solving difficult problems with hard tech
VC is famous for investing in software, but HAX says there is growing interest in the possibilities of hard tech, which refers to “engineering or scientific breakthroughs in the physical world.” Developing innovative hard technologies is often seen as too risky due to material costs and long development cycles, but a new wave of investors and founders are realizing that software is the key to solving the biggest challenges, especially climate and energy. I believe there are limits to how we can solve transformations. In the US, there are dedicated hard tech funds such as Lux Capital, DCVC and Eclipse VC, but this trend is now also coming to Europe with VCs such as HCVC, who will launch his second fund in 2023. It focuses on technologies such as high-speed, ultra-high-precision sensors. Designing new generations of semiconductors and new satellites.
6. Data development in digital health
Healthcare has been slower to digitize than many other sectors due to its complexity, structural and regulatory challenges. And while digitalization accelerated during the pandemic, many of the biggest innovations, such as telemedicine and workplace health management, are now at the boil.
However, healthcare challenges persist, and the aging of the world’s population continues to focus attention on meeting the growing demands. There are many technologies available today that have the potential to revolutionize care, including treatment software, AI, and predictive analytics that support early intervention and provide diagnostic and treatment recommendations. However, given data privacy regulations such as GDPR, the continued balancing act between technology implementation and cost reduction, implementation and integration challenges, and the availability of vast amounts of data will continue to hinder its adoption. Masu.
Next year could be a turning point, as federated data platforms increase adoption, allowing patient data sets to be shared across silos, leading to a boom in collaborative research and personalized medicine. Improvements in the underlying data systems and harmonization of datasets will lead to significantly better multimodal AI models that will gain initial traction in low-risk back-office use cases such as transcription, pre-authorization, and medical coding.
7. B2B and cross-border payments
Payments have been a major growth area in recent years as the use of cash has declined and fintechs have developed innovative new ways to move money. However, there is still much work to be done in B2B and cross-border payments, which remain slow, cumbersome and expensive for many businesses. Additionally, current economic challenges make fast and cheap payments more important than ever to manage cash flow and drive growth.
Many emerging startups are exploring new and innovative ways to speed up processes using blockchain, digital wallets, stablecoins, and other borderless technologies. This sector is likely to remain resilient over the next 12 months, with AI emerging as a way to maximize payments insights to drive further efficiencies, improve customer service and reduce fraud. We may also see consolidation.
8. Rise of the frugal entrepreneur
Finally, the challenging economic and funding environment of 2023 is causing a shift in the types of successful entrepreneurs, and this shift will become even more apparent as 2024 progresses. During the boom years, the most successful founders were the ones who could pitch, attract investors, dazzle the media, and raise impressive funding rounds, but now a completely different skill set comes to the fore. It’s coming. The lack of available capital means that the most successful startups will be those that are most careful about how they spend (and save) their money. Thinking on their feet, these founders often strive to innovate at the lowest possible cost and see a path to sustainable growth and profitability over “growth at all costs.” I’m looking for. The era of the “frugal entrepreneur” has begun.
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