In 2021 and At the beginning of 2022, startups experienced a time of great optimism. Capital was still plentiful and cheap, and business buyers were very interested in experimentation, making it a good time to be a startup. But suddenly, in 2022, the wind changed, inflation reared its head, the Federal Reserve raised interest rates several times, and money became much more expensive. Buyers became uneasy, buying cycles suddenly extended, and startups began to feel the pressure.
There is a simple law of economic physics: in general, the economy goes up, down, and eventually up again. But as we approach the middle of the final quarter of 2023 and some of the economic signs have improved, is it reasonable to expect that we will see a recovery in which startups can once again thrive?
It may not be so simple this time. While IT budgets are expected to improve in the new year, that doesn’t necessarily mean startups can take advantage of that money. Do not forget that many tech-spending-calculus-for-cios-f6b3bf92″>major technology providers increased prices this year, making things even more complicated for startups looking to get a piece of that action; Companies may be forced to invest more money in existing line items.
All of those factors and more have led to a continued shift from growth to efficiency, forcing many startups to tighten their belts to cut costs. The most notable way to do this has been to lay off employees and generally try to be as efficient as possible, but that also comes with its own set of problems. Startups, especially earlier-stage ones, already have an “all-hands-on-deck” approach, and cutting employees means having to do the same amount of work with fewer people.
As we approach 2024, what does all this mean for the startups that managed to make it out this year? Can they expect things to improve next year or could it be even more difficult than the last?
It depends on who you ask.
Rough seas ahead
Scott Raney, CEO of Redpoint Ventures, has been at this for more than 20 years and says the environment we’re seeing now has less to do with an economic downturn than a market correction due to unrealistic valuations in 2021. Simply put we are seeing a return to more rational levels.
