5 gut punches coming to founders in 2024

This time last year, I put down a few thoughts about where 2023 would take us. 

It was bleak:

“If 2022 was a rough bit of road for the metaphorical company vehicle, 2023’s road map is likely taking us off the road well traveled. We’re leaving the smooth blacktop for a rutted-out, forgotten logging road. You should check the tires, too, because companies without great traction are going to slip and possibly be left behind.”

I had three major predictions:

1. Marketing teams may face budget cuts, and layoffs will continue. 

2. Teams with indirect impact on the bottom line will be downsized. 

3. Turnover will likely cause some stagnation in product development.

It’s been that and more. Politicians may be telling us we have a great economy, low employment, and cheap gas, but the fact is wages haven’t kept up with inflation. I don’t need to show you a wages vs. inflation chart for you to know that a trip to the grocery store hurts more than it did just a few years ago. 

Unfortunately we’re coming into 2024 with more of the same for startups. 

A few anecdotes from a recent New York Times story:

Meteoric growth in fundraising led to startups falling back to earth like a Boeing bomb. A few recent examples of crash and burns—Hopin, a startup that raised $1.6B+ and was once valued at $7.6B sold for just $15M. Zeus Living, a real estate startup that raised $150M announced a shut down. Plastiq, a financial technology startup that raised $226M went bankrupt. Bird Scooters had raised $776M but was delisted from the New York Stock Exchange because of its plummeting stock. Bird is now worth $7M. These stories go on and on. 

Companies are failing at an incredible pace. About 3,200 private venture-backed U.S. companies went out of business this year according to data from PitchBook. Those companies had raised $27.2B in funding. This number is admittedly under reported. Carta, a company that tracks equity among investors and employees for startups, announced that 87 of the startups that raised at least $10M had shut down this year as of October. That’s twice the total of 2022.

Soft landings for acquisitions have been hard to find. Convoy, a freight startup that was valued at $3.8B saw the tires come off this year, too. Convoy started to run out of money and had three buyers pull out. The company closed shop a few months ago. 

It’s brutal out there right now

About once a week, a founder reaches out to me to say some version of, “I’m about to fundraise. Can we meet to chat about the landscape?” I got one of these texts today.

If I know the founder, I’m taking these calls to try and help friends. But the truth is, the answer isn’t a fun one to give. This is the most frustrating market I’ve seen in my short time fundraising (I started in 2017), and seasoned investors are saying it’s at least the worst environment in nearly two decades. I’ve been encouraged to see incredible transparency about how hard it is, such as this note about the demise of Braid, a fintech company.

Many founders who built 24-30 months of runway at the peak of the fundraising gold rush in 2021 had no clue what they were stepping into. I’ve watched it first hand and try to give a transparent take on what it’s going to take to be successful in this environment. 

It’s with that in mind today that I share my predictions and thoughts on what 2024 likely holds for Silicon Valley founders, as well as some advice. 

2023 was the first half of a death match

Sound morbid? It is. If you don’t think so, please refer back to the paragraphs ahead. Companies are failing left and right. 

Interest rates and inflation have been killers this year. They obviously go hand-in-hand, as the central bank increases rates to slow down spending. The problem is inflation surged so fast, a lot of company’s unit economics are still ugly, and interest rates are not going to drop all that significantly next year (we’re talking about 7%, maybe 6%). 

In my opinion, we’re in for at least nine more months of hell. Here are the ways you’re going to be impacted. 

1) Investors are playing it safe & Silicon Holler investors are in hibernation 

A smart founder always asks an investor about not just their check size, but about their check activity. If you’re practicing this right now, you know that investors have not only pulled back on their investments, they’re being extremely rigid in their investment criteria. While in 2021 you had investors stepping outside of their lane to invest, it’s just not the case right now. 

If you’re chasing and pitching investors who aren’t focused on your sector, you’re wasting your time. You need to stay hyper focused on funds and angels where you have sector alignment. Once you have that, make sure you’re finding out when their last check was written, and how many checks they wrote in 2023. Do not be surprised to hear anything from zero to three checks. 

With the cash crunch happening among startups, this means more people are competing for those checks. Rounds are taking longer than the standard six months, and founders are having to reach out to far more investors. If you’re raising in 2024, plan on pitching three times as much to get half the success rate.

2) Lack of access to Series A capital 

According to all of the data I’ve seen from companies like Carta, mature companies are struggling the most. This has led to many companies downshifting their round sizes, which puts more mature companies competing against your metrics. I have seen many companies, who would have been Series A ready by 2021’s standards, raising Seed rounds. 

This is happening for a few reasons. With investors cutting fewer checks, they can be more selective with the companies they’re working with. The other thing is a lot of companies are going through pivots right now to try and get to profitability ASAP. Profitability means default alive, so it is the king metric (I’m speaking generically—this isn’t a CFO newsletter, so I’m not getting into the differences of free cash flow or operating cash). But pivots are also pushing companies to raise a second seed round.

All of this to say that if you’re a Silicon Holler company planning a Series A, you should realize you have a weakness—your current cap table likely has few connections to help you close a Series A. It’s just a fact. I’ve found this to be a challenge time and time again with companies in our region. Our ecosystems have grown well over the last few years, and can support a company into a seed stage. But there is a huge gap between our regional funds and the type of funds that cut $5M to $15M checks. You are starting from scratch, and there is a mountain of networking ahead of you just to start finding the right firms who can lead your round. Realizing this now is your super power. 

3) Maintaining talent is going to be even harder in 2024

Many of my founder friends are operating on hiring and pay freezes, if not outright pay cuts to keep salaries down. This may work in the short term, but this decision is rearing problems that are going to come to light this year. Your talent will only put the company ahead of their family’s needs for so long. Topping team members off with options is paying them with Monopoly money. They can’t use it to buy groceries, pay for their kids’ tuition or take care of life’s sudden expenses. Ensure your team is operating by a “hit by a bus” policy, or in other words, make sure you’re documenting everyone’s day-to-day roles so that if a rockstar leaves, you’re not stranded. 

4) Fewer shots for product market fit

Startups are naturally spending years to find and refine product market fit. Typically when you hit the Series A (which I believe is now taking companies about two years), you have it. You may not have that kind of time in this market. Move fast, analyze often, and iterate like your life depends on it, because it does. 

5) Less exit opportunity 

I can’t even count how many of my founder friends are in or have been through acquisition conversations lately. Some did well, some didn’t. Founders often think they can soft land a nice exit for themselves if it all goes wrong, but you should realize that acquisitions have slowed down significantly. 

Think of it this way—big companies are going through challenges, too. Anyone opting to buy your company is making a bet. In fact, they’re likely making a career changing bet that your tech, team or product is going to be a win. If you end up needing that soft landing, it’s critical you realize the high stakes in this environment so you’re aware the path to acquisition could be rougher than in years past. You need to be building these relationships years ahead of an exit.

Look, I don’t want to be a downer. 

But I think it would be irresponsible for me to only share stories from successful projects without sharing these realities with founders. I’m talking to way too many founders who just haven’t realized what they’re dealing with, or on the flip side, they think they’re the only ones dealing with it.

It’s everyone.

It’s the Birds, Convoys, Plastiqs and Braids of the world. Hopefully this advice jump starts your year and helps you find success during these wild times. 

If you know a founder, please share this newsletter with them. 

Disclaimer: I’m far from an economist or even an analyst—just a Silicon Holler founder who’s living and fighting in this environment. Consult an expert. 

Who I’m listening to: Jason Hawk Harris (one of my favorite albums this year)

What I’m reading: “Demon Copperhead” by Barbara Kingsolver

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