Last year It was tumultuous for venture investors, to say the least. The ecosystem seen as a startup funding dried upheld its breath as a $32 billion venture capital-backed company evaporated almost overnight and witnessed one of the largest start-up acquisitions of all times.
Did you hear someone yell “bingo”? Probably not. It’s unlikely that many investors came close to predicting what would happen in 2022. But hey, there’s always next year.
It looks like we are entering another interesting and tumultuous year: the cryptocurrency market is hanging by a thread; everyone watches with popcorn in hand to see which unicorn will fall next; and the hype around AI continues to mount.
Some think that 2023 will be just the beginning of a winter of risk and a general economic downturn, while others think that we could see some stabilization as things return to normal around the middle of the year. But who can say?
To find out how investors think about the coming year and what they’re planning, we asked more than 35 investors to share their thoughts. Here is a selection of his answers lightly edited for clarity.
How is the current economic climate affecting your implementation strategy for the coming year?
US-based early-stage investor: My goal is to deploy the same amount each year, but the climate has led to much less interesting startups/founders increasing rounds, so I’ll probably deploy 20-30% of what I want.
Bruce Hamilton, Founder, Mech Ventures: We are contemplating reducing the size of our check so that we can double our number of investments from 75 to 140.
Damien Steel, Managing Partner, OMERS Ventures: We believe there will be incredible investment opportunities available in the coming years and we are excited to continue the same pace of implementation that we have had in the past. I expect international funding in Europe to decline over the next year as GPs come under pressure. We see this as a great opportunity to support each other.
California-based venture capital: New deployments have stopped for us and the remaining funds are being directed to follow-on rounds for our existing portfolio.
Ba Minuzzi, Founder and CEO of UMANA House of Funds: The current economic climate has had a huge positive impact on our deployment strategy. I am excited for the first quarter of 2023 and the full year of 2023 for the opportunities that lie ahead. The end of 2022 has been a great awakening for founders. It’s time to be disciplined with burnout and very creative with growth. Lean times create the best founders.
Dave DeWalt, Founder, CEO and CEO of NightDragon: We will not change our implementation strategy much despite the macro conditions. This is for a few reasons, most of which are based on the continued importance of and investment in our core market category of cybersecurity, security and privacy.
We see a huge market opportunity in this space, which has an estimated TAM of $400 billion. This opportunity has remained strong and expanded, even as the broader economy struggles, because cyber budgets have remained very resilient despite company cutbacks in other budget areas. For example, in a recent CISO survey of our advisory community, 66% said they expect their cyber budgets to increase by 2023.
Innovation also continues to be in demand beyond what is available today as the threat environment worsens globally. Each of these factors gives us confidence in continuing to invest and deliver results for our LPs.
Ben Miller, co-founder of Fundrise: The economic climate will get worse before it gets better. Although the financial economy has already been revalued, with multiples returning to historical norms, the real economy will be next to fall. That will lower growth rates or even lower revenue, magnifying valuation compression even more than we’ve already seen so far.
We are responding to these circumstances with a new solution: offering unlimited SAFE to the most promising mid- and late-stage companies. While SAFEs are traditionally used for early stage companies, we believe founders will be very receptive to expanding their leads with the fastest, lowest friction investment solution available on the market.
Dave Zilberman, General Partner, Norwest Venture Partners: Ignoring the macroeconomic climate would be unwise. As such, as we are multi-stage investors, we see the current market as an opportunity to overweight early-stage investments in the seed and Series A stages.
Economic headwinds won’t preclude the need for more developer solutions; developers support the foundation of competition in a digital world. As developer productivity and efficiency will become even more important, solutions with a clear ROI will stand out.
What percentage of unicorns are not worth $1 billion right now? How many of them do you think will fail in 2023?
Kirby Winfield, Founding General Partner, Ascend VC: It has to be like 80% isn’t worth a billion dollars anymore if you use public market offsets. I think maybe 5-10% will fail in 2023, but maybe 40% in 2025.
Ba Minuzzi, Founder and CEO of UMANA House of Funds: We started 2022 with five portfolio companies that had “unicorn status” and two of them have already lost that status. I think this data is indicative of the general theme: that two in five unicorns will lose, or have lost, their billion-dollar valuation. I see this trend continuing in 2023.
Harley Miller, Founder and Managing Partner, Left Lane Capital: Up to a third, I would say, are worth decidedly less than that, especially for companies whose paper valuations are between $1 billion and $2 billion. Businesses with high consumption rates and structurally unsound economic units will suffer the most (eg, fast business delivery). It’s not just whether they’ll continue to have “unicorn status,” but whether they’ll be bankable, at any value, period.