2023: The Year the Cheap Money Bubble Burst

Founder mental health crisis looms

When money is abundant, it's challenging to envision the surrounding challenges that such availability may bring in the future. 🕧 The scenario in which the environment brought unexpected effects became a reality in 2023. Now, just a few days into the new year, we can see more clearly its effects in areas like technology.

May this newly minted year be an opportunity to learn from the lessons and find opportunities within them. 🆕

At the same time, let it be a moment to identify which mistakes are not worth repeating, especially those that time has exposed, precisely, like the inherent risk that comes with cheap money.

Six bullets of updates

  1. 🎓 Several Indian universities are offering a "temporary withdrawal program.” Some criticize this move, pointing out that a small percentage of startups achieve profitability within the first year.

  2. 💥 Startup frenzy is spreading beyond Silicon Valley, with a 30% hike in new businesses across America.

  3. 💰 FirstCry aims to raise $218M in an IPO, scaling down from its initial $700M target at a $4B valuation.

  4. 🔓 Generative AI could add up to $4.4T annually to industries, but only 17% of businesses are addressing its potential risks.

  5. 🌿 Despite high hopes, Germany didn't legalize adult recreational cannabis in 2023, hinting at potential industry consolidation in 2024.

  6. 🎨 Design software startup Canva is close to a deal enabling employees and investors to sell over $1 billion in stock.

Startup Boom Turns to Bust: Understanding the 2023 Dynamics

The tech landscape has dramatically shifted as the cheap money-fueled startup bubble burst in 2023. The previous decade saw a surge in ventures, with WeWork, Bird, and crypto startups at the forefront. However, the onset of Covid disrupted the trend, redirecting focus towards tools for remote collaboration, education, and entertainment.

The easy availability of funds, driven by the Federal Reserve's low-interest policy and Covid stimulus efforts, led to unprecedented investment in risky tech areas. In 2023, this bubble collapsed, marked by rising interest rates, persistent inflation, and a turn towards efficiency. WeWork, Bird, Hopin, and Clubhouse faced bankruptcy or decline. The failure extended to crypto ventures like FTX and automaker Nikola.

The aftermath signifies a necessary recalibration, emphasizing profitability over unchecked growth. Venture capitalists foresee 2024 as a year to bury overvalued startups, anticipating a new era of well-run companies. The Nasdaq's recent highs reveal continued enthusiasm for tech, but lessons from the 2023 washout highlight the need for sustainable business models. Despite challenges, some anticipate the IPO window reopening in late 2024, emphasizing adaptability and a shift toward profitability in the evolving tech landscape.

Startup Events and Deadlines

  1. Financial Modeling Course | January 22, 2024 | Online

  2. Pitch Deck Design | February 13, 2024 | Online

  3. SaaSOpen: Austin | March 3, 2024 | Austin

  4. World Summit AI Americas | April 24, 2024, Montreal

  5. TechCrunch Early Stage | April 25, 2024 | Boston

Takeaways from this week’s podcasts

In this wrap-up episode from A16Z conversations from 2023, we listened to the most relevant insights on several topics.
For example, in Healthcare-meets-Fintech, regulatory tailwinds like the Price Transparency Law and the move towards value-based healthcare models create opportunities for startups to streamline healthcare processes and make pricing more transparent and fair.

In another segment, Steve Wozniak talks about how true inventors focus on creating tangible solutions that didn't exist before rather than predicting the distant future. Even as an inventor like Wozniak, predicting more than a year ahead is challenging as technology and society can evolve in unexpected directions.

Sonal Chozksy and Steph Smith on A16Z podcast 🎧

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Not business as usual: Founder mental health crisis looms

Investors are expressing concerns about a possible increase in mental health challenges among founders. As funding becomes scarce and startups face difficulties amid economic uncertainty, Brad Svrluga from Primary cautions about a potential "unprecedented founder mental health crisis." 

The pressure of steering startups through challenging times, compounded by the ongoing pandemic and remote work, intensifies the founder role's inherent challenges, making it a more isolating experience. Nevertheless, there is a gradual shift in breaking down the stigma around mental health, with some investors initiating programs to tackle founder mental health and burnout.

A Cap Table Template

Understanding stock, preferred stock, convertible notes, angel investing, venture capital, and other fundraising instruments can be truly overwhelming. This cap table template will help you plan and keep track of your equity and avoid a mistake that can cost you millions of dollars if you're not careful.