2023 was a brutal year for start-ups and VCs. Founders had to adapt to the new reality of expensive money if they could raise any at all. Some clear-eyed founders made deep and decisive cuts to ensure they could continue building for the future. Others simply ran out of road.
Heading into 2024, there is talk about bounce backs and a return to offence. It is a fact that markets move in cycles. History tells us what goes up, comes down and goes back up. Be it the 2000 Dot-com crash or the 2008 Global Financial Crisis, there is a recovery that follows. Nearly 90% of European VCs foresee doing the same or more deals in 2024, up from two-thirds a year ago (source: Atomico’s State of European Tech)
Let’s not, however, miss the opportunity to reflect and take some valuable lessons from the past few years.
For a time, when the supply of capital was seemingly an on-demand service, many start-ups raised more money than they needed. Money lends confidence and, in many cases, the confidence masked the fact that growth was being chased ahead of product-market fit and viable business models. Some never found product-market fit or sustainable business models and, without those things, the money runs out and it is too late to reset.
Raising big money also meant big valuations. For a founder who had worked hard to get their start-up off the ground, this brings a personal sense of success and bragging rights. The thing is big forward-looking valuations are hard to grow into and, when targets are not met, the big valuation becomes a big burden. Down rounds take away employee stock option values and morale.
It takes special tenacity, resilience, and purpose to build a start-up. It is not for everyone. It is also not about chasing big funding rounds and glitzy valuations prematurely. Those things will come when an idea has been transformed into a business that is creating value.
It is incumbent on VC investors to display the same tenacity, resilience, and purpose. In the boom years, too many investors dived into the VC market without the experience and the resilience.
As we head into 2024, it is not a quick bounce-back that we should be wishing for, rather a return to the true spirit of entrepreneurialism where leaner, more resilient start-ups are matched with leaner, more resilient investors. In fintech, the backdrop could not be more exciting with an emerging generation of start-ups driven by profound advances in AI and built on the intersection of financial services and insurance with climate, education, and health. This coming phase could well be the best time for start-ups and investors in a long time. Importantly, what gets built in this coming phase is much more likely to endure.
