Bring It On, 2024!
We are glad 2023 is in the rearview mirror and optimistic about what comes next.
Happy New Year! We hope you had a chance to relax and reflect over the last several weeks. While we are grateful for the time with loved ones, we are excited to be back in the swing of things.
đ Thought Bubble: Bring It On, 2024!
During the era of easy capital in the years leading up to 2023, capital efficiency wasnât always prioritized or awarded. Businesses with bad unit economics were able to raise large amounts of money at insanely high valuations. It created a distortion of what it means to actually build or invest in a startup. While being a founder (or investor) was never easy, it certainly felt that way starting in 2021 and continuing into 2022.
Then came 2023, which was a tough, turbulent year for many in the venture world. After nearly a decade of a largely bullish market, 2023 brought a stark shift to the venture ecosystem, ushering in a funding environment that was more discerning than it had been in recent memory. Iâd argue that this shift in prioritizing the fundamentals of building a successful business, while challenging, was a necessary recalibration for the ecosystem.
The 2023 funding data cited below might be a downer, but looking ahead to 2024, weâre optimistic. The lessons of the past year have instilled a renewed focus on innovation, resilience, and focus. Itâs clichĂŠ, but the next generation of legendary founders are building in this marketâweâre ready for whatâs next!
đď¸ 2023 State of Venture
CB Insights released their 2023 State of Venture Report that recaps 2023 through various data points on funding into regions, sectors, and stages. Some interesting points include:
The median deal size in 2023 for early-stage companies was $2.0M, which is the same as it was for 2022.
The number of deals worth more than $100M shrunk by more than half from 2022 to 394.
Total VC funding was the lowest itâs been in five years, $248.4B.
STV Take: I think how challenging it was for most founders to fundraise was overshadowed by the âhotâ deals with repeat or somehow known-quantity founders in hyped areas, like AI, which have enabled Seed valuations and round sizes to remain steady. In 2024, many are predicting a more robust year for M&A and IPOsâtwo of the most important drivers in the ecosystem. More M&A and IPOs will unlock capital and (hopefully) revitalize and replenish capital across stages.
đ SaaS Benchmarks
Lighter Capital, in partnership with Blossom Street Ventures, released a SaaS Benchmarks report that aggregates metrics, such as net dollar retention and average contract value, for publicly traded U.S.-based SaaS companies that IPO'd after 2017. While I wish you could sort with a bit more granularity, itâs still far easier to use than alternatives.
STV Take: Specific benchmarks related to the type of company being built is always helpful in identifying what may or may not be working at a startup. I also thought the broader view at the end of the report on quarterly trends was interesting. The revenue to burn ratio increased from Q1 2022 to Q2 2023 (the time span of the data). Iâm sure some of this is a function of companies maturing, but I imagine it must also correspond to the shift in the market to a preference for more capital efficiency.
âď¸ Legal & Finance Guide for a Smooth Founder Exit
In episode 17 of the Private Equity Value Creation podcast, the host, Shiv Narayanan, interviews two accountants and a lawyer on legal, financial, and tax preparations that founders can take to ensure a successful and high-value business exit. Not surprisingly, key points made centered on the necessity of getting financial affairs in order, organizing and documenting business operations consistently, and addressing potential legal and tax issues well in advance of a potential exit.
STV Take: The overarching takeaway from this podcast is to get your ducks in a row early, which regardless of whether youâre preparing for an acquisition or fundraising is sage advice. Flip to around the 12:30 mark for some interesting banter on how startup leaders often donât have accurate MRR numbers or know key contract details that are consequential for revenue recognition.
đ´ Decompression Zone
Even though I dread the dreary January weather, I do love the renewed sense of optimism the new year brings. While 2023 might have felt like a discouraging year for startups and innovation, exciting breakthroughs in science did happen. Listen to this episode of Plain English with Derek Thompson, for some uplifting insights into the latest breakthroughs in science and technology that could truly, radically change our world.Â