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Jon Bradshaw & Peter Harris

Join hosts Jon Bradshaw and Peter Harris as they dive into the realm of venture capital predictions for the year 2024. In this episode, they navigate through the turbulent landscape of the startup world, exploring the highs and lows that lie ahead for entrepreneurs, investors, and emerging technologies.

2024 Venture Capital Predictions

Join hosts Jon Bradshaw and Peter Harris as they dive into the realm of venture capital predictions for the year 2024. In this episode, they navigate through the turbulent landscape of the startup world, exploring the highs and lows that lie ahead for entrepreneurs, investors, and emerging technologies.

From the inevitable down rounds to the tough decisions faced by struggling startups, Jon and Peter offer insights into the challenges and opportunities that await in the coming year. They discuss the impact of valuation reassessments, the shifting narrative around startup culture, and the looming specter of zombie funds.

Amidst predictions of market corrections and increased accountability, the hosts also explore under-the-radar opportunities and emerging trends in the ever-evolving world of venture capital. From the rise of AI-powered solutions to the potential disruption of traditional media formats, Jon and Peter leave no stone unturned in their quest to unravel the mysteries of the future.

Tune in as they speculate on the future of entrepreneurship, technology, and investment, and share your own predictions for the year ahead in the comments below. Whether you’re a seasoned investor, a budding entrepreneur, or simply curious about what lies on the horizon, this episode promises to enlighten and inspire.

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Episode Transcript

Jon: This is our 2024 venture capital predictions.

Peter: Let's do it.

Jon: All right, You ready, Peter? Go.

Peter: All right. My predictions for venture capital this year is is going to be a very rough year with a lot of pain, which is probably not what people want to hear after surviving 2022 and 2023. But the reason I believe that is because I think it'll be the year where a lot of people take their medicine. So what I mean by that, there will be down rounds there will be companies that go under.

Peter: There will be a lot of companies looking at like acquired and fire sales. There will just be a lot of ugly activity like that. I don't know how much of it will make it to the news, but I think a lot of companies have reached the limit and a lot of investors have reached the limit of how long they can push off the inevitable.

Peter: And I think 2024 is the year where we've reached that limit. And that's driven by, you know, valuations held by venture funds become stale at like 24 months and auditors start pushing them to to reassess and revalue their their portfolio. That's going to impact LPs. LPs are going to see differing values on portfolio, right? They're going to start pushing back on VCs.

Peter: I think companies will have run out of options and they'll run out. They'll have run out of, you know, people that are willing to give them money that will either have achieved profitability or not. And they're going to make you know, they'll have to make some tough decisions on like, do we push for growth at this point? Do we raise money or do we go find a buyer?

Peter: Because, you know, the rock and a hard place that a lot of startups in right now and one of the I do not envy but one that I work with a lot of our portfolio companies and talk to a lot of founders about is on the one hand, you have insiders that are saying get to profitability and then the other hand you have external investors that are saying we only want to invest in companies that are growing.

Peter: And as companies you're kind of stuck in the middle, right? Because you can get to profitability. A lot of companies can get to profitability if they sacrifice growth, right? But if you sacrifice growth, you're also sacrificing your future. And so you really want to try and run this middle ground where, you know, you you cut anything that's not super efficient so that you can extend your runway, but you still want to have good growth so that hopefully you can last to the second half of 2024, wherein I think what'll happen is the Fed will start cutting rates.

Peter: I think there will be you know, there generally people are pretty optimistic about the economy overall. I think that will continue. And I think that as a lot of these companies like over, you know, these overvalued companies start getting revalued where they should be, that's going to be really healthy for the ecosystem overall. A lot of people are going to take their lumps and then money that's been sitting on the sidelines for a long time will start to come in and start playing.

Jon: Right. So no more massage rooms at companies like Pluralsight?

Peter: I don't know. Right. I think some companies might have to make some cuts of some of those things. I think the glory days of working at a tech startup and making, you know, a ton of money and having all these like fancy cool perks is going to go away. And I think we're going to go I mean, to a certain extent, or it has gone away for a lot, But I think we're going to go back to this mentality of like, look, you want to work at a startup, great, You work at a startup because you are playing for like the upside, the long game, the like impact story, like all of those things, right?

Peter: You're in and accordingly you're going to get some equity, but it's going to be riskier, it's going to be a riskier job. You're going to make less money. And that hasn't been the narrative for the last several years. I think we're going back to that narrative and I think honestly, it's a healthy thing. I think I think one of the big problems with interest rates being super low is their abundance of cash and cost of capital is super low.

Peter: And you had lots of money flowing into this sector, lots of lots of dollars chasing relatively few deals that pushed a lot of power into the hands of the entrepreneurs. And maybe this is a controversial thing to say, but I don't think that that was healthy for either the company or the investors because you had founders that didn't have enough oversight.

Peter: And just like great teams have good coaches that provide good oversight on the on the players, and that oversight helps and like accountability pushes them to to their their very best. I think the same thing needs to happen within companies where VCs can really hold founders accountable for their actions. And I think by doing so, it helps founders go on and achieve even bigger and better and greater things.

Peter: Whereas for the last several years we've been funding like huge outcomes with lots of cash. I think what we should have been like in an ideal world, we should be funding huge outcomes with excellence of performance. And so I think as a pendulum start, it has swung back over to the investor side. I think the healthy thing that can come out of that is that there's more accountability for founders that pushes them to greater heights, and that as we see more of that, there will be more money that comes off the sidelines to invest in these companies.

Peter: As we see startups like reset their valuations, there will be more money that comes in to participate in those deals as well as found funding new deals. And I think generally like second half of my prediction in the second half to 2024, we'll start to see a lot more activity and things will be a lot more positive.

Peter: I think, you know, we talked on another episode about how, from my perspective, the series a metrics like that, you need to raise a series. They really haven't changed much. It's just that having them hasn't been enough to get a series a deal done and that overall volume is down a lot. And I think the data from Pitchbook and Carter demonstrates that.

Peter: I think going forward we'll see. You know, maybe valuations won't change much. Maybe those metrics that are acquired won't change much, but the number of deals that actually get funded will go up. And then lastly, I think there will be a lot of emerging managers that go from emerging managers to zombie funds as they and they're, they're the investment period.

Peter: So most, most emerging managers are going to be investing in seed stage companies, seed and series A, they'll typically have investment periods of 1 to 3 years and if you raised in 2021, you're now like ending out your investment period and a lot of these companies have not seen write ups and valuations of their investments for the last two years.

Peter: They probably have seen some write offs, so their performance isn't super great. Most of them are going to be backed. Most of them are backed by high net worth individuals that don't necessarily have the balance sheet to keep funding subsequent funds. So they're going to be basically going to say, look, you return the capital I invested and I'll put more in and their performance won't be strong enough to attract the institutional investors who by and large have really pulled back from venture anyways.

Peter: So it's like there's fewer dollars and then you don't have the performance. So we're definitely not going to back you. We're going to stick with the, the, you know, more blue chip venture funds that have raised multiple funds and we'll just keep backing those. and so I just think there will be a lot of attrition. Probably like 50% of venture funds will fail to raise a subsequent fund.

Peter: But because these are ten year funds, they've got seven more years. They're just sitting out there supporting their portfolio company, hoping portfolio companies, hoping that one of those like hits and drives enough returns that eventually they could raise another fund. And so they'll pretend like they're active. They'll take a lot of meetings with entrepreneurs without any intention of ever investing.

Peter: And so if I'm a founder, that's one of the things I should be like. I would keep in mind as like being really clear about like, are these guys actually investing or not? So you don't waste your time on these zombie funds that will be out there.

Jon: And you do that by asking, what were the last three deals and when were they?

Peter: Yeah, yeah. I think that's that's a good, good question that you should be asking.

Jon: That be too aggressive if if someone's like hey you want to me and just to come right out. Sure I would love to meet but.

Peter: I mean you could I mean it does like, it doesn't feel great, right? But you can also softener could be like, hey, we'd love to meet. I don't think there's anything wrong with, like, doing a quick 30 minute pitch. Right. Great. You get some practice. but after the pitch, I'll, you know, if they're like, Yeah, let's keep chatting or whatever.

Peter: Right. I think a really easy way to, to get checked out is by like, Hey, could you connect me to the last founder you, you backed. I'd love to, to get their perspective right.

Jon: That that's a good secret.

Peter: Yeah. So you can kind of you can get you can do some background diligence on them as well.

Jon: They invested you in 2007.

Peter: Y Yeah. So and but you can also just ask, ask VCs like, hey, you know, where are you in, in your fund cycle. Right. Like you know, what fund are you investing out of. How active are you, What else are you deploying into?

Jon: Right. Yeah. What about.

Peter: What about AI?

Jon: Is it a trend or is the trend?

Peter: I feel like with AI we are at the top, maybe starting to slide down the other side of the hype cycle, but I could be wrong. I think I is definitely a monumental force, similar to the internet mobile, social, etc. but I think there is a little bit of like ADL fatigue and I think frankly, it's been a great time to be a seller of AI, maybe not such a great time to be a buyer of AI.

Peter: I also think that a lot of AI successes will come from incumbents.

Peter: Not from new startups. And I don't know that we've quite yet seen like the killer app for a new company to take advantage of this. Right.

Jon: And it's not open. I.

Peter: I mean, I think open AI is one of them, right? But I think that's kind of been decided at this point.

Jon: Okay.

Peter: Like, about and like, I think the foundational models are all like really interesting and have like legs, but like they're all like really big companies now. I think the AI wrappers are really tough. There might be a couple in there, the end up building really nice businesses. I think there will be a bunch of infrastructure plays that are interesting, like, like specific companies.

Jon: Or just like whatever infrastructure.

Peter: like I think I will ultimately get deployed in the same way that cloud computing gets deployed.

Jon: So like the AWOL stage maker bedrock, those type of tools.

Peter: Yeah, all of the tool, all the cloud tools that are out there like cloud ability and all the like take all that stuff, reapply it. I Right. Okay. I think there will be that. And then I think like really proprietary data sets, that are highly valuable will also be be interesting.

Jon: Do you think we'll start seeing people coming acquiring companies that have proprietary data sets and merging them potentially?

Peter: Yeah. And it will be a lot of ways in which proprietary high value datasets get get monetized either through acquisitions or through building product on top of them.

Jon: Okay. What about under the radar opportunity is that you're excited about?

Peter: I think probably like one of the bigger under the radar opportunities is that I think A.I. is, you know, for a long time people are freaking out that, like blue collar workers. We're going to be in a tough spot as technology improved. And I think now we're realizing that it's actually white collar workers that are in a tough spot with AI.

Peter: So I think that blue collar jobs are going to come through a renaissance where people are going to realize, like, I should go to college, I should go become a plumber or a mechanic or whatever, and that there will be high returns to those jobs. And so investing against companies that are solving problems in that arena I think will be really interesting.

Peter: and look, I think like there have been a bunch of companies that haven't gotten any love because of AI. And I think there might be some interesting opportunities to go hunting for deals in that that arena where it's like, yeah, I don't have to pay up like 100 X revenue because this isn't like an AI company, but it's still a very solid, great company.

Peter: Right. And I'm going to back it and it's got, you know, some interesting legs, so I don't know. What are your predictions for the year?

Jon: John I think AI has the hype cycle has peaked to an extent. Yeah. I do think there'll be some emerging AI companies that get acquired by, I think eight of us. Google Cloud Azure will acquire those more in the computational space. I think you're going to see more trends of like companies like Lambda that are doing a lot of heavy processing specifically for AI as a competitive advantage.

Jon: But I think they'll lose. They'll start losing their advantage to the cloud, to the cloud companies, I know I'm not looking at deals like you're looking at.

Peter: Well, but you're thinking about things as a founder, right? Like, what are your predictions for 24? Right.

Jon: I would like to see that. I think there'll be something maybe more impactful than an opening. I coming up.

Peter: Like a better model, a better foundational model.

Jon: I think they'll be the people who can learn to leverage armies of, like, agents. They'll be the next real power move, I think. I think people are just trying to get their heads around it.

Peter: I think the amount of adoption of AI is both staggering, but also insufficient.

Jon: Okay. Like.

Peter: Like we are just scratching the surface today on what's possible with AI. Right. So it's staggering in that like, you have companies like open AI that have gone to like multiple billions in revenue in such a short period of time. Right. But on the flip side, like, there's still so much more that can be done.

Jon: I think the enterprise space, there's a lot more that could be done with AI and I think you'll see more of a rise of statisticians coming into play. Yeah, they'll become more, more valuable.

Peter: Yeah. Or just people that make it easier to leverage it. Right.

Jon: And it'll be a combo.

Peter: Yeah. I am interested too. I don't think like props are the most efficient way to engage with AI. I think what will be more interesting is just like, do the thing for me. Right. I ask for it and it gets done. Like, I think that is kind of interesting to see, you know, what kind of evolution occurs there.

Jon: Siri, do my homework. Siri, find me the best toothbrush.

Peter: Right. Well, not not only that, but it's like Siri. Just like tomorrow morning. I want the best toothbrush to show up on my doorstep.

Jon: Or you're fired.

Peter: Right? Right. Like, I think that is like, when it'll get, like, really cool.

Jon: Soon.

Peter: Soon? Look, there's also, like, this question, though, of, like, as creation gets cheaper and cheaper and easier from I, I also wonder a lot about curation and how do we, like, navigate all of the inbound becomes tricky.

Jon: I think we just closed ourselves off.

Peter: And then maybe, I don't know.

Jon: Just all everyone stay in their home with their agent.

Peter: But you know, it's something I do think about with our podcast. Do we ultimately get disrupted by a guy who just says, Hey, John, you want to listen to a podcast? I will create the perfect podcast just for you. And you don't have to sit and listen to Peter: anymore.

Jon: Potentially. I don't think so, but we'll see. I do think we'll see a podcast for sure. Yeah, they're already out there. You don't realize they're there.

Peter: for sure. Well, you could argue that. I don't know. Like probably most and I don't have most, but a lot of podcasts are I. Because they'll use eyes to drive the script.

Jon: I mean, I think we.

Peter: We use. We use it, right? I think sometimes we're not we don't really script out what we talk about, but like, we do it use it for prompts and stuff.

Jon: So I do think I think will happen there. As humans, we like to be inspired by others. And so I think podcasting, TV, movies, I think there'll be some stuff that just completely air generated. But I think there's still the aspect of part of the reason we watch things for listeners because we aspirationally want to be them.

Peter: Okay, but what happens when they have like an A.I. generated persona that you can't distinguish between a real person and that persona?

Jon: I mean, we'll see. I don't think we come to that. I don't think we're at that point in anywhere, anywhere so intensive.

Peter: So I know we're wrapping up this episode, but I mean, the thing that I've been thinking about a lot is this article I read recently. There was this A.I. app, that was like, like a romance A.I. kind of thing. So you could date and I. And the company was shutting down, and so many of their customers were, like, heartbroken and distraught over.

Peter: And they were, like, holding, like, funerals and stuff and like. And and so I guess, like, my push back there just a little bit is like, in some ways, we're already there. There are people that are having these, like, unique, personalized relationships with A.I. that are triggering like, you know, chemical emotional responses in their brains. Right.

Peter: So, you know, if that's already happening on the romantic side with thousands of customers, maybe tens of thousands of customers, I don't know. how much longer before it starts bleeding into, like, of the general populations.

Jon: All just merge. You don't realize it.

Peter: Enter the matrix anyways.

Jon: Sounds good. Well, thanks for watching your one code. Venture capital firm. YouTube. Spotify.

Peter: Tell us down in the comments. What do you think? What are your predictions for 2024? Is it going to be a good year? Rough year? A little bit of both.

Jon: And will replace Peter and John.

Peter: It probably should. Until next time.

Jon: Thanks, guys.

Peter Bye.