So I thought the toughest times for venture would be behind us now.  In 2022, we were in free fall, with public market caps falling like a knife, and the IPO markets frozen.  And 2023 was the year of the Work Out in venture.  Bridge rounds slowed down, and VCs acknowledged a lot of portfolio companies just weren’t going to make it.  It got real in 2023, and that realness got normalized.  The drama mostly was behind us.  And public SaaS stocks in many cases did really, really well in 2023.  So shouldn’t 2024 at least be better for venture?

So I thought.

But the reality is I’m a bit more worried the venture drama in 2024 will be bigger than 2023.  Why?  Four core reasons:

#1:  Now We Have to Deal With the Reality of the Stumbling Unicorns.

The ones that are doing $100m+ ARR, still growing, but there just isn’t going to be any more money coming.  This is going to burn up a ton of energy in VC funds.  Even tougher, the reality is while many VC funds marked down their unicorns to lower valuations in 2023, they often didn’t mark them down enough.

#2.  The Chase for AI Unicorns and Decacorns is All-consuming.  It’s Still 2021 There.

The one place where paper money seems easy to come by is Hot AI Startups.   And that’s probably not you.  It’s just consuming all the oxygen in venture, trying to get into the next Imaging AI startup worth $1B in 10 months.  In AI, 2021 never went away.  In AI, it’s still 2021.

#3.  A Lot of Seasoned VCs are Discouraged. This Doesn’t Help Founders.

A lot of VCs who have been around for a while are quietly discouraged.  They just don’t see a great path to making a ton of money in venture these days.  We’re in Year 3 of a venture downturn, and that weighs of most of us.  At a practical level, for founders, it makes it harder to lean it.

#4.  More Valuation Markdowns Are Still to Come

Related to the first point, but more markdowns are like mutliple rounds of layoffs.  They’re just tough.  LPs lose confidence.  Coworkers lose confidence.  We should have gotten through a lot of this in 2023, but we didn’t.  Personally, I’ve got several investments for example that I marked down. 70%-80% or more — that my co-investors didn’t mark down at all.

#5.  VCs Have Run out of Reserves

VCs used what extra “reserve” capital they had for bridge rounds in 2022 and 2023.  Now it’s gone.  That’s adds to the stress as companies struggle.  You don’t have a play anymore.

The bottom line is there likely is at least another full year of working through the excesses of 2021.  That will weigh across venture.  No matter what some AI headlines suggest.

 

(falling image from here)

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