Last year At least for venture investors, it was a flurry. The ecosystem has seen startup funding dry up, with a $32 billion venture-backed company being liquidated overnight and one of the biggest startup acquisitions of all time.
Anyone say “Bingo?” You heard him say. Probably not. It’s unlikely that many investors will come close to predicting what will happen in 2022. But, hey, there’s always next year.
It looks like we are entering another exciting and chaotic year: the crypto market is hanging by a thread. Everyone watches with popcorn in hand to see which unicorn will fall next. And the buzz around AI continues to swell.
Some in 2010 Some think 2023 will be the start of a competitive winter and a general recession, while others think we’ll see some stabilization as things return to a normal mid-year. But who’s to say?
We asked more than 35 investors to give us their thoughts on how and what investors are thinking about the year ahead. Their answer choices have been slightly edited for clarity.
How is the current economic climate impacting your deployment strategy for next year?
A US-based early stage investor: My goal is to deploy the same amount every year, but the climate has led to many interesting companies/founders raising rounds, so I deploy 20%-30% of what I want.
Bruce Hamilton, Founder, Mech Ventures: We are considering reducing the check size to double our number of investments from 75 to 140.
Damien Steele, Managing Partner, OMERS Ventures: We believe there will be incredible investment opportunities in the coming years and we are excited to continue the same pace of deployment as we have in the past. I expect international funding to Europe to decrease in the coming year as GPs come under pressure. We see this as a great opportunity to support.
California-based V.C. New deployments have stalled, and remaining funds are being directed to subsequent rounds of our existing portfolio.
Ba Minuzzi, Founder and CEO, UMANA Funds House: The current economic climate has had a significant positive impact on our deployment strategy. I am excited about the opportunities coming our way for Q1 2023 and for the entire year of 2023. The end of 2022 was a great awakening for founders. It’s time to be disciplined with fire and be very creative with growth. Times of scarcity make the best founders.
Dave DeWalt, Founder, MD & CEO, NightDragon: We will not change our deployment strategy even though there are many conditions. This is for a few reasons, most of which are based on the continued importance and investment in cybersecurity, safety, security and privacy in our core market segments.
With TAM estimated at $400 billion, we see a huge market opportunity in this space. This opportunity is strong and widening, even as the larger economy struggles, because cyber budgets have remained strong despite company cuts in other budget areas. For example, in a recent survey of CISOs in our consulting community, 66% said they expect their cyber budget to increase by 2023.
As the risk environment continues to worsen globally, innovation is more important than ever and needed. Each of these factors gives us confidence in our continued investment and delivery of results for our LPs.
Ben Miller, Co-Founder, Fundrise: The economic situation will get worse before it gets better. Although the financial economy has already been rejected, when multiples return to historical norms, the real economy will be the next to turn down. That would slow growth rates or even lower earnings, highlighting valuation congestion more than we’ve seen so far.
We are responding to these conditions with a new solution: offering unsecured CFAs to the most promising mid- and late-stage companies. While SAFEs are typically used for early-stage companies, we think founders will be most receptive to extending their runways with the fastest, lowest-friction investment solution on the market.
Dave Zilberman, General Partner, Norwest Venture Partners: Ignoring the macroeconomic situation would be reckless. As such, given that we are multi-stage investors, we see the current market as an opportunity to overweight early-stage investments in seed and Series A levels.
Economic headwinds will not deter demand for more developer solutions. Developers support the foundation of competition in the digital world. As developer productivity and efficiency become more important, solutions with a clear ROI will excel.
What percentage of unicorns are not currently worth $1 billion? How many do you think will fail by 2023?
Kirby Winfield, Founding General Partner, Ascend VC: If you use public market comps you should be like 80% worthless anymore. I think they will probably fall 5%-10% by 2023, but maybe 40% by 2025.
Ba Minuzzi, Founder and CEO, UMANA Funds House: We started 2022 with five portfolio companies with “unicorn status,” two of which have already lost that status. I believe this data is indicative of a general theme – that two out of five unicorns miss or lose their $1 billion valuation. I see this trend continuing into 2023.
Harley Miller, Founder and Managing Partner, Left Lane Capital: Up to a third, I’d say, a certain amount is less than that, especially for companies with a paper value of $1 billion to $2 billion. Companies with high burn rates and structurally unsound unit economics will suffer the most (e.g. rapid commercialization). Not only do they still command “unicorn status”, but rather they are funded at any price, any time.
