by Taylor McAuliffe & Hessie Jones
Will 2024 continue to be a challenging year for startup founders and will it favor the investment community, still reeling from the FOMO investing and the fallout in 2022?
Recently, the World Bank came out with the following prediction for 2024:
“Global growth is projected to slow for the third year in a row—from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s. Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade.”
They are dubbing 2024 as the “Weakest Half-Decade Performance in 30 Years”. While we waited for this so-called recession that never really came, there are indications like what we’ve seen at the start of the Ukraine/Russia conflict two years ago that set off an economic fallout that saw the steep fall of Crypto and NFT and, in parallel massive investment pullout from overvalued startups during the pandemic.
This time while the global economy is in a better place, mounting geopolitical tensions in Gaza, and now in Iran, will influence where we’re headed this year.
Innovation will take a hit as we’ve already witnessed at the end of 2023 with rising tech layoffs
“Amazon saw the most workers laid off in 2023 (27,410 workers) followed by Meta (21,000), Google (12,115) and Microsoft (11,158).” This continues at the turn of the new year with more layoffs from Google, Amazon and Microsoft and TikTok, among others.
In the fall of 2023 David Wright, Investment Analyst remarked, “Investor returns in the VC industry have not always paid up for the risks involved in private investments.”
Wright noted that in the last 4 years, VC fund performance had its ebbs and flows with the mid-to late nineties being the standout period. “The average returns from VC investments have consistently hovered around 9%, comparable to public markets,” but Wright highlights that the more telling metric is the “1.8% returns indicating that there is a disproportionate performance that favors a handful of VCs while the “majority have largely underperformed.”
As of January 24, the Bank of Canada held its interest rate at 5%. US interest rate remains unchanged from a month ago at 5.5%. Wright contends that the rise we have seen in interest rates is pushing down valuation multiples, “making it difficult for investors to secure excess returns even if a company’s valuation increases over time.”
Investors are watching the Bank of Canada and the Fed to see signs when interest rates will fall. This will impact startup investment opportunities in 2024.
We reached out to startup investors and advisors in Canada and the US: Shirley Speakman, Senior Partner with Cycle Capital, Giselle Melo, Managing Director at MATR (matter) Ventures; Glenn Nishimura, Chief People Strategist at Nishimura Consulting; Gayatri Sarker, Founder and CEO of Advaita Capital; Bryan Duarte, Managing Partner at BlackTech Capital; Felicity Meyer, Lead Investor in Cleantech and Foodtech for BoxOne; Olga Cruz, Senior Investment Associate at Good & Well, and Shambhavi Mishra, Director of Growth at Antler to weigh in on the lessons of 2023, what’s in store for 2024 and how startups should prepare.
EMERGING TECHNOLOGIES, SOCIAL CHANGES, AND ENVIRONMENTAL CHALLENGES CONTINUE TO SHAPE THE STARTUP AND INVESTMENT LANDSCAPE
Amidst the flurry of innovation and disruption, 2024 is expected to be a pivotal one for the investment and startup landscape. To find success in this dynamic and complex market, we need to anticipate the trends and opportunities that are to come.
One major theme expected to surface in 2024 are the opportunities for cleantech. Shirley Speakman, Senior Partner at Cycle Capital, a Toronto based venture capital investment team focused on growing world-class clean technology companies, believes that climate focused technology companies will have their moment in 2024,
“The opportunity in climatech remains significant. Macrotrends from economics to policy have shifted to favor climatetech. Finally getting COP participants to acknowledge the need to transition away from fossil fuels was a meaningful market signal.”
Speakman is not alone in her prediction. Bryan Duarte, Managing Partner at BlackTech Capital with over 30 years of experience in the Energy Industry, also anticipates a significant increase of climatetech/cleantech startups emerging in 2024,
“As the impacts of climate change become more noticeable worldwide the need for mitigation strategies will come to the forefront.”
However, Duarte warns that entrance into the cleantech industry is not for the faint of heart. Founders must be willing to put in the work and work closely with investors,
“In the past year, I have seen a tripling of the climatetech/cleantech founders and programs versus what I’ve seen in the previous 5 years. Many of these deep tech projects take much longer than the typical 10-year fund life to mature so both investors and founders need well thought out strategies to be able to bring these to fruition.”
While the public outcry in response to this past summer’s forest fires dwindles, memories of smog filled cities serve as a stark reminder of the severity of climate change. As the global push for net zero intensifies, opportunities and funding for cleantech startups is more important than ever. Shambhavi Mishra, who has helped companies develop got to market strategies to expand globally, is optimistic that in 2024 people will start putting their money where their mouth is, in terms of addressing climate change,
“Climatetech will continue to attract more dollars as the world targets to achieve net-zero emissions. There will be increased availability of incentives, tax credits, grants, and other incentives are available for climate and energy-related investments given the increased focus of both U.S. and European commitments to climate-forward industrial policies.”
Meyer, of BoxOne, which also invests in climate and food technology, notes that food tech will shift away from vertical integration towards more collaboration, leaving siloed companies to “struggle”,
“Platforms, tools, and infrastructure that play supportive roles will be absolutely vital as the industry matures. Despite initial challenges, I’m optimistic about the emergence of new players taking creative approaches on the future of food to meet consumer and investor expectations, alike.”
The buzz of AI will only continue to blare in 2024 as it advances and innovates across various domains and sectors.
Sarkar, founder of a 100% women-POC owned growth VC firm that is focused on investing in deep technology that will advance the human race, anticipates that “the next race for 2024 may be investing in AI chips and the rise of domestic semiconductor startups.” The CHIPS and Science Act, signed into law in August 2022, will continue to have huge impacts on accelerating the industries of the future. The law’s provisions for funding research and development, as well as incentives for domestic chip manufacturing, are likely to create new opportunities for tech startups and AI companies in the US. Sarkar states that,
“This [act] will catalyze the next 20-30 years. We will see advancement of sci-fi R&D tech, where the commercialization of quantum computing, nanotech, clean tech, advanced medtech, AGI, robotics, and personalized AI will boost US competitiveness. That means 2024 will continue to see early-stage funding in deep technology and hardware sectors.”
All eyes are on early-stage technology companies. However, with so much hype and competition in the space, standing out from the crowd is essential. Duarte, of BlackTech Capital, argues that there is a need for differentiation and simply labelling your company as an AI user is no longer sufficient,
“It will no longer be enough to claim that your Startup uses AI; founders will need to demonstrate exactly how it is being utilized and to what extent. Over the past few years, investors have gotten a lot smarter in this area, so founders will need to be able to differentiate themselves from their competition.”
Ethics in AI is a vital and urgent necessity that we cannot afford to ignore. As AI technology advances, it also poses significant challenges and risks for human rights, privacy, security, fairness, and accountability. Mishra, Director of Growth at Antler in Canada, states that in 2024, ethics must be at the forefront of development and deployment,
“2023 was a year with a strong influx of companies emerging in the AI space, 2024 would bring forward the need for ethics in AI and a possibility of being regulated. This is a need to make sure make sure it’s a force for good in both business and the world at large.”
When asked what the investment and startup landscape will look like in 2024, Cruz, of impact investing firm Good & Well, answered that it is mission-driven founders who will find success in 2024, “[It] will be a dynamic year powered by a cohort of driven and grounded founders.”
Cruz anticipates a continuation of what she calls “entrepreneurial Darwinism,”:
“In 2024, I anticipate witnessing the outcome of this survival of the fittest, meeting resilient founders who are navigating the downturn with determination and efficiency, all while achieving their milestones.”
From a people perspective, we’re all familiar with last year’s tech-wide reckoning. Unfortunately, 2024 may shape up to be no different. Glenn Nishimura, Chief People Strategist who helps startups and scaleups build and optimize their teams, culture, and people operations conveys that founders will need to continue to face the reality of doing more with less,
“Same destination, smaller boat…founders will have to work twice as hard and be twice as creative to keep their existing teams happy while riding out the storm. Having their best people voluntarily resign – especially during a time when layoffs are already decimating entire companies – could be one disaster too many.”
For Giselle Melo, whose fund, MATR Ventures, invests in late seed and Series A in deep tech software companies, recognizes that while valuations at most stages have “wilted” since the market peaked in 2021, she notes, “valuations at the seed stage have mostly remained steady due to the participation of large, multistage investors. As big firms slowly pull back from early-stage deals, these conditions present opportunities for niche investors.
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