Is 2024 The Year Of Investor Restraint And Startup Resilience? 8 Experts Weigh In

This article was written in collaboration with Taylor McAuliffe, researcher and writer for Altitude Accelerator, who focuses on investor relations, startup ecosystems, emerging technologies and financial markets.

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
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
AMZN
saw the most workers laid off in 2023 (27,410 workers) followed by Meta (21,000), Google
GOOG
(12,115) and Microsoft
MSFT
(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 increasingly 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 [Conference of the Parties] 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. 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, “As the impacts of climate change become more noticeable worldwide, the need for mitigation strategies will come to the forefront.”

“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, reminders the smog-filled cities soon afterward serve as a stark reminder of the severity of global changes to our environment. As the global push for net zero intensifies, opportunities and funding for cleantech startups is more important than ever. Shambhavi Mishra of Antler, who has helped companies develop go-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.”

Felicity 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 Advaita Capital, 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 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, “[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,” and highlights the resiliency and creativity of mission-driven founders. “Founders with these qualities are poised to build more sustainable business models and long-term value creation.” She explains,

“The fear induced by an overall decrease in funding in 2023 led to a natural selection process, a form of entrepreneurial Darwinism. In 2024, I anticipate witnessing the outcome of this 2023 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.”

RESILIENCE, ADAPTATION, AND PATIENCE: WHAT VCS AND FOUNDERS LEARNED FROM 2023

The VC market underwent a massive reset in 2023, changing the game for both investors and startups. Economic uncertainty and the overhang from existing money in the market limited investor appetite and made fundraising more challenging. What can we learn from this turbulent year?

Mishra, an expert in executing global high value venture capital investments and exits, highlights the need for founders to apply the lessons of resilience and adaptability they learned in 2023 to thrive in 2024. She states:

“2023 was a year of resilience and adaptation for founders. There was a seismic shift in investor sentiment – mirroring global trends of caution and slowdown in investment. Company valuations and funding accessibility rapidly declined, while interest rates continued to rise. This set the stage for entrepreneurs to pivot, seeking resilience and innovation in the face of adversity.”

Duarte, Managing Partner at BlackTech Capital, echoed this view,

“From 2023, the best founders learned how to make the capital invested into their companies last longer. They could no longer count on relatively fast fund-raising rounds so they had to plan on 18-month to 2-year runways between rounds.”

Learning from the past can help us navigate the uncertain future. The scarcity of capital may not be entirely negative, as it also creates valuable opportunities for learning and improvement. Investors can use their experiences to better evaluate risks and opportunities in the market. The emergence of technologies, such as crypto, NFTs and AI, opened new markets and intensified competition. This influx of tech-startups can lead to opportunity overload; however, Duarte believes that the patience and diligence investors learned over the past year can help investors sift through the noise to find a unicorn that will last,

“Investors learned a lot from the rapid pace of deploying capital in 2021 and 2022 and became much more patient in 2023. This will continue well into 2024. In 2023 there were so many write downs/write offs on investments made in the previous two to three years, hence greater diligence is likely. However, I feel this will all help to produce better and more enduring companies versus the latest flash in the pan.”

Sarker, founder of Advaita Capital, also warned that after the Supreme Court’s decision to overturn Affirmative Action in 2023, there may be further scrutiny on “tangible outcomes on DEI dollar deployments, despite overwhelming enthusiasm from corporates, VCs and LPs to promote such programs.”

2023 also underscored the importance of providing founders with the resources, feedback, and network they need to succeed in the competitive and dynamic market. Mishra stated that for VCs, offering “support post investment” has been a key learning to take forward.

Meyer, who leads BoxOne’s investments in climate and food tech, revealed that with the growing excitement around companies focused on food sustainability, founders must ensure that they are leading with strong strategies and practical milestones,

“Companies must adopt realistic R&D strategies, while ensuring they don’t over-promise on commercialization timelines.”

When asked what investors and founders are learning from 2023, Cruz, Senior Associate who leads the impact management practice and invests in early-stage Canadian businesses, Good & Well, expressed this,

“Work with an aligned mix of investors: The vital importance of aligning investors with the company’s mission has become unmistakably clear, emphasizing a meticulous approach to cap table construction. As well, co-investment strategies and collaborative efforts are essential to reduce investment risks and optimize the support available to founders.” Cruz also emphasized founders focus on practical milestones to demonstrate traction… with investors demanding tangible evidence of cost-effective traction before committing significant capital. Finally, Cruz states the importance of bringing your humanity to work,

“It is more important than ever to bring our humanity to work. Whether you call it stakeholder capitalism, conscious capitalism, or some variation, this approach simply flows from bringing our whole selves to work. Organizations make better decisions when they make room for the full scope of people’s values, concerns, and capacities.”

IN 2024, AI WILL BEGIN TO BE EMBEDDED; CLEAN TECH

ECH
HAS MORE FUNDING OPPORTUNITIES AND STARTUPS WILL NEED TO OPERATE RESPONSIBLY AS THEY GROW

For Speakman, whose venture fund invests in later stage clean tech companies in the plastics and polymer upcycling and energy storage to name a few, cash flow will always be king but states, that “in periods of uncertainty like we are facing, managing cash sets you apart and keeps you in control of your destiny.”

Melo, Managing Director of MATR, investing in deep tech, concurs. It’s about optimization and encourages founders to “continue doubling down on understanding where the growth is coming from, practicing through their metrics” and remaining lean.

Sarkar, of Advaita Capital, which invests in later stage companies in deep technology and decarbonation, emphasizes startups need to prioritize their profit margins with continued pressure on those currently in the growth stage to be IPO ready. More specifically, “their valuation needs to reflect their ability to generate cash. We may see some named late-stage startups like Stripe and a few others IPO depending on macro market volatility.”

Shambhavi Mishra, formerly of McKinsey and IBM, who has executed high value venture capital investments and exits globally within consumer tech, education, and gaming, likewise counsels startups to aggressively focus on capital efficiency with a sharp focus on measuring revenue growth, customer retention and a path to profitability. On valuations, she advises, “Given the lack of easy accessibility to capital, founders should not get fixated on valuations, but solve for capital availability and opportunities to extend their runway. It cannot be growth at all costs.”

Nishimura, who advises companies through a cultural lens, reminds us that in previous year the question has been, “how can I build and grow a great culture as I scale my team from 50 to 200?” He argues this has fundamentally changed to “how can I maintain a great culture as my team shrinks from 50 to 20?” Nishimura sees the layoffs having direct impact on the cultural sustainability of the organization,

“In a year where burn rate, belt tightening and layoffs will likely continue to be heard over and over, startup founders should pay careful attention to the impact all of that is having on their people and on their culture. Are you noticing people are taking more time off? Is there less laughter? Does the office feel less vibrant than before? Especially during times of great change and duress, it’s critical to take a pulse of how every person on the team is feeling. Don’t assume that just because people show up for work, they’re happy. Don’t assume that if someone has a problem, they will come to you. Think of culture as your company’s immune system and take steps to boost it this year. Just as your body’s immune system is made up of different parts like lymph nodes, white blood cells, and your skin; your company culture is comprised of leadership, communication, and hiring practices, among others. When they all work together, you’ll enjoy a stronger, healthier and more resilient company, and be better protected against the bad things that can and will happen.”

Duarte, of BlackTech Capital, a social venturist with over 30 years in the energy industry, sees the eventuality in Artificial Intelligence and advises startups need to gear up for a more effective use of AI and focus on its seamless integration into their products or services. He encourages startups to take advantage of substantial grants and government funds for climate initiatives like the The Inflation Reduction Act (IRA) of 2022 in the US, which has allocated $400 billion in federal towards substantially lowering carbon emissions in the next decade, through tax incentives, grants and loan guarantees. In addition, Duarte points to Breakthrough Energy to help the planet reach zero carbon emissions by funding work on climate technologies. They have partnered with the Department of Natural Resources, Canada making available up to $40M for breakthrough energy technologies.

Duarte adds those founders who are fundraising should “continue (or start) to be more capital efficient–be prepared for deeper diligence and longer time to fundraise.”

Meyer, an expert in life cycle assessment and who looks at startups through an operator mindset sees food technology as vital in 2024, expressing, “Food will always be important to people, but proving differentiation from a tech perspective should be the focus in 2024. Some of our most promising investments were made in times of economic uncertainty. Resilient companies and founders will find themselves in a strong position if they can stay lean, focus on the science, and push through.”

Cruz, of Good & Well, urges startups to be mindful of the capital available as 2024 will reveal eager, but more discerning, investors. She adds founders must emphasize scalability, “by potentially venturing beyond Canada’s borders, especially for industries facing limitations. Demonstrating resourcefulness and traction through… waitlists, distribution agreements, and active customer engagement will be crucial for success in the evolving market.

She adds, for those aspiring to be entrepreneurs, recognize that 2024 is a “call to action.” She encourages founders to “embrace sustainability… dedicating themselves to tackling the world’s most significant challenges that not only resonates with the prevailing spirit of the times, meets urgent societal needs and aligns with the increasing investor appetite, which will continue to be strengthened as the $755 million Social Finance Fund, backed by the Canadian government, is deployed.”

2024 WILL BE A BALANCING ACT, WHERE CLEAN TECH AND ARTIFICIAL INTELLIGENCE WILL GAIN GROUND

2024 interest rates are expected to come down. This will be an investor’s market; no doubt and they will be more selective and more diligent in their search for viable companies. Founders are expected to remain vigilant when it comes cash flow management in the face of market volatility. Nishimura provided a salient perspective as teams potentially shrink, and the importance of maintaining a positive and resilient company culture will be imperative. The prevailing view on tackling as Cruz points out, “the world’s most urgent needs” suggests that there is no shortage of problems that require innovative solutions.

The key is a balancing act between growth and cash management, with a fortitude that startup founders must possess to navigate times of uncertainty and remain focused while finding pockets of opportunities to get to the next stage.

ABOUT
BOUT
: Taylor McAuliffe is a researcher and writer with Altitude Accelerator, a non-profit innovation hub and business incubator which provides programs to help founders grow and scale. She has a deep admiration for reading and writing, with a strong background in writing for various domains, including investor relations, startup ecosystems, emerging technologies, and financial markets. Taylor holds a BA from McGill University.