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13 Predictions in Technology and Early Stage Investing in 2023

One year ago, at the start of 2022, public markets were at an all time high, valuations for technology startups had never been more aggressive, and unemployment rates were at record lows. Cash was available to not just the best companies, but almost any company in the tech space.

What a difference a year makes, goes the common quip. With that in mind, here are 13 predictions for the upcoming year

  1. Valuations (and share prices) of publicly traded tech companies will continue to be volatile. Resets in valuations will continue through the first half of 2023, and if consumer demand softens, volatility could stretch into mid-2024. NASDAQ will fall at least 10% in H1, but rebound and end the year slightly up. This will result in more margin conscious decisions and layoffs in the growth economy, with tech feeling the brunt of it. We are still in the early stages of this reset which will stretch into Q3 of 2024.

  2. These layoffs will produce tailwinds for early-stage startups. Ask any founder of an early-stage company what their top challenge was from 2020 to mid-2022 and I would bet hiring good talent was in their top three. As more and more talent leaves FAANG, hiring skilled tech talent at wages startups can afford, will be much more approachable. Average starting wage for technical talent will come down 25% from H1 2022.

  3. Layoffs from big tech will create a wave of new startups from those former employees now building their own projects. Already, some VCs are taking advantage of this by offering pre-friends and family funding to these talented people.

  4. Valuations fall at Series A-C by another 20%, but valuations at Seed and Pre-Seed will stay flat. The best founders can command more favorable terms as later-stage investors look to invest earlier where the return profiles will remain solid.

  5. Y Combinator quietly resets their SAFE valuation cap to $10M for graduating companies. This will create a more investor-friendly environment for early-stage checks.

  6. Corporate VC investment slows to a five-year low as corporate budgets are reallocated to productivity initiatives. Corporate VC for bleeding edge deep tech will slow as more focus will be on the bottom line.

  7. Predictive AI will transform pricing strategies for eCommerce, retail, and CPG. Walmart, who already has enormous sets of data, will lead in this space.

  8. Generative AI will disrupt AdTech, MarTech, and brand communications and fuel a new AI-powered media experience for consumers. Dozens of startups can now build a website or social media copy in a matter of seconds. New media startups will figure out how to do this in a highly curated and personalized way that builds unique articles based on actual events. Think Spotify Discover but with custom songs each time.

  9. Dramatic consolidation of businesses with poor unit economics. With the days of zero interest rate policy (ZIRP) squarely in the rearview mirror, companies that relied on fundraising to survive who cannot square their unit economics will go away. By the end of 2023, we'll all talk about the last-mile graveyards.

  10. Private Equity takeover opportunities will be abundant. The PE shops that win will have a very narrow focus area and spot opportunities in spaces they know. The underperformers will tend to go too wide.

  11. Fewer moon shots from VCs. Much has been written about the amount of capital on the sidelines, but VCs will be much more risk-averse in deploying to newer concepts. Many VCs don't want to go back to LPs and call capital unless there's high conviction. The VCs that will win in 2023 will ask three questions for 2023:

    1. How are we learning?

    2. How are we adapting to the new market?

    3. Are we making bold moves?

  12. Early-stage VC deals made in the first half of 2023 will become the very best performers for VCs in this general vintage of funds.

  13. VCs that with vintages of 2019-2020 and deployed 80-90% of capital during 2020-2022 will struggle to raise new funds until late 2024 (if at all).

Let us know what you think on Twitter @rosskimbel or @siliconroadhq.

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