2023: What’s Forthcoming in Startups & Work
Projecting out for the coming year, here are number of emerging startup and work-related themes I think will predominate:
There will be a new wave of startups. Despite the economic situation and VC-reset, there will be a new wave of start-ups, one that might include the next Googles or Apples. Examples from history: Disney was born and boomed in the embers of the 1929 stock market crash, Hewlett Packard started during the Great Depression, Apple and Microsoft emerged during a 1970s recession, and Airbnb was born during the international financial crisis of 2008-2009.
VC Outlook & Dynamics will be Bifurcated. For the venture capital rounds and ecosystem, 2023 will be a year with two halves: The first half will be desolation and the second half will show improvement. Among the things we can expect:
Most startups which did not raise sufficient funds to get through 2022 and are losing money will compete against a glut of startup companies seeking capital.
Startups that have unresolved founder and/or ELT issues, limited or no product market fit, and deficient unit economics will fail. VCs who amassed funds in 2021 and 2022 are sitting on the sidelines, intentionally not deploying capital. VCs have become super-selective.
Startups with strong leadership teams, low burn rates, product market fit, and positive unit economics will face lower valuations equivalent to 2015 levels.
Anticipate valuations in seed rounds at or below $10 million, Series A rounds between $15 million to $25 million, Series B rounds around $25 million to $50 million, and Series C+ (including later rounds) completed at 10x revenues. There will be many flat rounds and a significant incidence of down rounds. There will be many inside rounds, and financings will have throwback T's & C’s – like multiple liquidity preferences.
More growth in new tech. In the technologies I follow, cloud, green tech, cybersec, augmented reality (AR) and virtual reality (VR), all will grow by virtue of additional startups, VC funding, and the further expansion of large companies. Drone-tech will also expand. In artificial intelligence, the ChatGPT craze has only just begun and Generative AI will continue to grow. Next year we’ll see the first no-code AI, with its easy-to-insert drag-and-drop interfaces enabling any business to leverage the power and capabilities of AI.
Enterprise adoption of the Metaverse. While AR and VR are in their infancy, 2023 will witness Metaverse take off in the enterprise ecosystem. The Metaverse is an excellent environment for first time drivers, new pilots, and surgeons to undergo initial training. Automakers have embraced this tech to design new vehicles. Expect Fortune 2000 companies, universities, and national training programs to jump into the Metaverse in even bigger ways in the coming year.
The IPO pipe will reopen. The IPO pipe has been effectively closed—especially for unicorns with astronomical valuations—for over six months. This pipe will reopen likely by the third or fourth quarter. Among the companies potentially going public:
Arctic Wolf, Databricks, and Flexport in enterprise technology and cybersecurity
Stripe, Revolut and Plaid in FinTech
Instacart and Faire in e-commerce and payments
Plenty in vertical (read: urban) farming
Canva and ICON
For an in-depth review of these companies, see Crunchbase IPO Forecast). This set of IPO exits in the second half of 2023 will also be accompanied by some large-scale M&A.
DEI and ERG will start being realized. For years, Diversity, equity and inclusion (DEI) and environmental, social and governance (ESG) initiatives have been discussed at the board of directors (BoD) level and had various levels of implementation by companies large and small. In 2023, CEO and ELT evaluations will help bring about more real changes. We will see not only discussions, but also substantive progress, on these fronts. More CEOs and ELTs will be held accountable for DEI outcomes via bonus and advancement opportunities based on the inclusivity of company culture.
Companies will retain top workers despite the downturn. Typically economic slowdowns force businesses do layoffs or Reductions in Force (RIF). However currently, both tech and non-tech companies are going the extra distance to retain top talent despite the worsening economic climate. The tight job market during and after the pandemic was painful, and companies scrambling for workers often lowered standards and settled for B-level talent. Open positions and turnover in sales and marketing departments has been a sore point for the last two to three years for companies who missed out on growth and market expansion. Lastly, exorbitant recruiting costs makes it smarter to “warehouse” talent rather than “RIF and eventually replace.”
The workday will get new attention. The traditional “one-size-fits-all” workday, workweek, and work year model is done. We’ll see more flexible schedules in the 9-to-5 workday and nonlinear workdaysbecome more common practice in both tech and non-tech companies. The four-day workweek will become a thing in many U.S. companies and we will move away from a focus on “discrete project” production and assessments to a focus on quality. The main driver behind these initiatives will be retaining talent for 2024. Employees can expect more input in the management-worker dynamic. Work-life balance will be respected more than ever before.
“Hybrid Work” is here to stay. Hybrid work allows for flexible schedules, while still making room for the occasional in-person meeting. Hybrid work boosts short-term productivity, but diminishes long-term community and creativity. Look for hybrid arrangements to become more formalized, with colleagues coordinating office days in advance and making formal arrangements for in-person coaching and mentoring. We already see these requests for flexibility and work-life balance in current job interviews.
Vast corporate headquarters will become passé. Large, prestigious corporate offices will become a thing of the past, while remote and hybrid work predominates. Smaller offices will become the vogue. Such changes will diminish the commercial real estate market and a devaluing of office real estate in general. This will impact cities that depend on employment and real estate tax revenue. Empty office space in cities will prevail.
The annual mental health check-up will become commonplace. The annual physical with a primary care physician is a mainstay of everyone’s physical well-being. In the aftermath of the COVID pandemic and today’s resulting mental health crisis it is clear that extensive annual behavioral health screenings will soon become a basic benefit as well.
The Gig Economy will expand. The Gig Economy shows no signs of abatement. With inflation straining household budgets, more workers will seek “side gigs” to supplement main jobs that are unfulfilling, either in terms of salary or satisfaction. A side hustle is no longer a secret you keep from main employer. Many workers today have multiple jobs for financial stability. Hybrid work, fundamental workplace changes, and the expanding opportunity to provide on-demand services (e.g., Uber, Task Rabbit, UberEATS, Airbnb) will only accelerate this trend in the coming year.
The reappearance of labor unrest. What’s old is new, and in the coming year picket lines, walkouts, sit-ins, and other (i.e., online) protests will increase in frequency. The change in worker psychology stemming from the pandemic, the success of Black Lives Matter, and the ensuing labor shortage, for example, has empowered worker protests in tech and other industries. In 2022, labor scored some big victories in the U.S., including behemoths like Amazon and Starbucks. The public approval of unions has hit its highest point in half a century. The stage is set for an intensified post-pandemic labor conflict and a movement toward building a “good jobs” economy in the US and across the globe. This initiative seeks family-sustaining pay, advancement, benefits, and a voice in the workplace.
Cryptocurrency Regulation. In 2022, we encountered the massive fraud perpetrated by FTX founder Sam Bankman-Fried. We know that cryptocurrency has the potential to undermine the authority of central banks and monetary authorities. At times, these currencies can be used to circumvent capital controls. In 2023, Congress and the various leading Biden Adminisration agencies (SEC, Treasury, etc.) may get their act together to define and regulate cryptocurrencies (i.e., as an asset or a commodity) and cryptocurrency exchanges.
In the aftermath of the Covid pandemic, workers have changed their expectations for what work is and looks like. Their work-life structure looks like nothing we’ve experienced before, and 2023 will be a test ground for deciding whether these views are permanent. Hopefully in the aftermath of the economic downturn related to Covid pandemic, founders have changed their expectations for what valuations and funding rounds looks like. We’ll see.
Have a very prosperous 2023.