2. The same goes for angel investors. “When the market bubble disappears, so does FOMO,” says David Chan, an entrepreneur and member of the group TBD Angels, using the acronym for “fear of missing out” on potentially great startup investments. Ta.
3. Things are tough for companies looking to raise additional capital but struggling to see improvements in revenue, margins or customer growth. Investors who were hoping for a company to hit one revenue goal last month are suddenly moving the target post. I would like to see 1.5 or 2 times that amount. “No one wants to write the last check to a company that will later go bankrupt,” Colleran said. “So everyone is waiting for something certain.”
Four. Maia Heyman, founder of Boston venture capital firm Converge, said she has seen layoffs in technology over the past two years, but she has never seen so many startups give up and declare bankruptcy. Rather, she said, companies are doing everything they can to cut costs and encourage existing investors to invest more, “living to fight another day.” Stressed startups are also negotiating with potential buyers. Even if a company wants some of the technology it built or a few key team members, it’s a deal known as an “acquisition.”
Five. Before COVID-19, venture capital firms tended to focus on regions where they had investment partners to scout deals. Now I’m willing to consider startups anywhere. A Silicon Valley investor who attended my session said that 9 out of 10 recent deals took place outside of Silicon Valley. Heyman said most of Converge’s employees are in Boston, but three startups it recently supported are in New York, California and Washington.
6. The days of startups bragging about their valuations are over for now. You know that things are going crazy in the startup space, with companies bragging about the valuations given to them by investors in their latest funding rounds. This is a fictitious number that becomes reality only if the stock goes public (and stock market investors assign its value) or is acquired at a certain price. But everyone was excited to invest in and work for a so-called unicorn company valued at more than $1 billion. Now they’re suddenly focused on efficient use of capital to attract and serve customers and want those unicorns as draft horses, Heyman said. “How much does it cost to generate that revenue? Can we grow in a capital efficient way?” Heyman said.
7. This year and 2024 are likely to be a demise event for a group of venture capitalists who have made unsuccessful investments in the recent startup funding bull market.
8. Venture capitalists are scrutinizing a number of companies with artificial intelligence-related products, worried they may be missing out on big winners in the field. As a result, companies started adding “.ai” to their names to indicate that they were part of the trend. The entrepreneur knows this is a bit of a game, but at this point he doesn’t make AI part of his pitch because he doesn’t list his Microsoft Excel skills on his resume and doesn’t offer a job as an analyst. It’s the same as trying to get it and you might just get blown away. . But that creates a number of challenges for investors to sift through.
Some attendees at the Underscore event worried that major companies like Google, Microsoft, and Amazon were investing so aggressively in AI that there would be no opportunities for startups to pursue. . (One of the people I met was Raj Agarwal, a former entrepreneur who was hired by Amazon Web Services to help with its push into generative AI.) People like Colleran , some say it’s still in its early stages. “I think of this as his Friendster and MySpace era of AI,” Colleran said, referring to his two social networks that preceded Facebook. “It may be wise to wait two years to see how it progresses,” he added.
9. It’s great again to start a company on your own, relying on customer revenue instead of funding from investors. Mike Festa’s last startup, focused on helping online retailers display their products in his 3D format on the Web, received his $2 million from Underscore and other investors. We raised a lot of money. However, the company failed to become profitable quickly enough to support itself, so Festa shut it down. But he thinks his 3D on the web and mobile devices is advanced enough that he’s working on a new venture. “But this time, instead of raising VC funding just for an idea, we’re going to build a business based on customer revenue first,” he said.
Ten. What could change the status quo? Venture capitalists could start writing more checks if they see big acquisitions, including chipmaker ARM, delivery service Instacart, and Boston-based There could be more initial public offerings for Klaviyo, the marketing software supplier. If medals aren’t awarded at the finish line of a marathon, everyone involved gets less excited about this struggle, and that’s where we are now.
At the conference, no one in my group expected a reversal of fortunes in 2023. And some predicted that the severe economic downturn would last until 2026. But the entrepreneurs at the event wore the right shoes, flashed their brightest smiles and enjoyed mini-burgers.
Contact Scott Kirsner at firstname.lastname@example.org him @ScottKirsner.
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