So 2023 sucked for the startup ecosystem. But there are signs that 2024 will bring opportunities for companies to reset, reload and win their markets.

Sure, it’s not going to be 2021 again, but that was an outlier year. Companies that wait for another 2021 to come around are going to wait too long to get moving. It’s the companies that act just ahead of an upturn that steal an advantage.

As we take in the news and the data, and see what investors are saying, we get a positive feeling that the tide is turning.

The Tide is Turning

Just after the new year, we noticed this LinkedIn post from Suranga Chandratillake, general partner at Balderton Capital in the UK:

“For a number of reasons, I believe companies that have made it through the desert of the 2022 and 2023 now need to re-engage a growth mindset, shake off any remaining negativity and remind themselves of the ambition that started their journey in the first place. There’s still a lot to play for and this could be the year for it.”

This is not what VCs were saying a year ago. Then, they were telling companies to hunker down, preserve cash, and just try to keep operating.

2023 Left a Graveyard of Startups

A lot of companies have since failed or were crippled. But, now that winnowing can be seen by survivors as a blessing. As Chandratillake noted: “The numbers are not yet confirmed, but a sizable graveyard of early stage tech companies was built and filled during the last two years. Every ‘survivor’ I know faces fewer competitors today than ever before.”

It was hard for companies to raise money in 2023. High interest rates made capital expensive. The wars in Ukraine and then Israel added to volatility and uncertainty – things investors don’t like. The collapse of Silicon Valley Bank in 2023 only added to any panic and made things worse. The market for IPOs dried up. Valuations – many of which were unrealistic two years ago – took a dive.

Here at the start of 2024, interest rates (and inflation) have stabilized and are likely heading lower. The wars rage on but at least they are “known knowns” now. Banking worries are behind us. As many news outlets have reported, 257 companies around the world look like probable IPOs soon. As CB Insights pointed out, these companies in the IPO waiting room “can’t wait forever — especially as late-stage venture capital dries up. The pressure will likely force the IPO window further open in 2024, even if the market conditions aren’t perfect.”

Lower valuations, while painful for the companies, are also important for the rebound. Investors backed off when valuations got out of sync with companies’ true prospects. But today, healthy companies that look like they will create and win a market category look enticing. In short, it’s a chance to buy low and sell high, which we haven’t seen in two years.

Venture investing may not be heating up, but it seems to be warming. SiliconAngle reported:

PitchBook believes a market reset is in progress. Valuations have come down but remain high relative to historical trends. Deal counts are down significantly from 2021 but have largely been above quarterly totals before that year. Dry powder, the amount of committed but unspent capital a firm has available to invest, remains high. “Capital is out there and strong companies can use the slow market to separate from the competition,” the report notes.

Significantly, the companies that break out now and pull private or public-market investors to them will be those intent on being category creators and winners. These are the companies that clearly define and gain the momentum to win a new and significant market category.

Now is the Time for Category Winning Strategies

For company leaders who believe they’re in that position, now is the time to clarify and solidify a category-winning strategy. Category design can be a competitive advantage and accelerator. Companies that do it from a position of strength will have a window for vanquishing weakened or tentative rivals. To use the language of Mike Maples of Floodgate, it’s an opportunity for companies that looked like they might hit a double to go for a home run.

“There are going to be thousands of companies raising in 2024 that bridged through 2023. Most will look the same: low growth, default alive, or lower burn,” AlleyCorp General Partner Marshall Porter said at an event hosted by TechNYC. “The outliers will secure funding much easier.”

In fact, TechNYC queried a number of New York-based VCs, and came to some conclusions about what it will take to get funding to scale in 2024. The newsletter wrote:

There are a few common indicators VCs told us they consider:

• Storytelling: This is paramount to your pitch, and it’s what will make a startup stand out. If your narrative is crisp, compelling, and explains why now, why you, and what’s next, you’re likely to have a better chance of success.
• Unique insight: It can be easy to get lost in a big market when you’re a small fish in a big pond. Prove the problem is big enough and that your team is the right one to solve it.
• Clear vision for the future: Know your long term goals and what the other side of financing will look like before you even get to the pitch meeting.

These are all attributes of companies that practice category design. If we can help, let us know, because this is the time to swing for the fences. Book a time to talk with us through our office hours page.