This was a tough year for startups. Sure, there were plenty of multimillion-dollar funding announcements, some of which we covered here at Localogy Insider. But overall, this was a year characterized by scores of startups failing because they ran out of runway before they were able to raise another round. Or if they did raise, many did so at reduced valuations.
Welcome to the VC winter. Not to mention spring, summer, and fall. The easy money era ended a while ago. We’ve been in an era of down rounds and outright failures for some time now.
The butcher’s bill has been steep this year.
An analysis published recently in Forbes showed that as of late November “543 startups shut their doors due to bankruptcy or dissolution.” Forbes cited data from Carta in the story.
Again citing Carta, the Forbes piece also noted that “so far in 2023, 19% of all startup funding rounds raised money at a lower valuation for the company than they’d previously been awarded by investors. That’s up from just 5% in 2021.”
Those founders who were able to raise a round this year describe a white-knuckle experience they hope not to have to repeat any time soon.
For example, when we spoke with Hummingbirds CEO and Co-founder Emily Steele about her company’s recent $3.3 million seed round, she made it clear the process was not for the faint of heart.
“It’s a really rough environment to raise,” Steele told us earlier this month. “You need traction, not ideas at this stage to get funding.”
Better Days Ahead?
So will 2024 be better for founders either looking to raise money or find an attractive exit (i.e., not a fire sale)?
Opinions vary.
The consensus reflected in the business press is that equity funding conditions may improve somewhat. But it will remain difficult to raise capital.
Interest rates will have a lot to do with it. Election year [in the U.S.] anxiety may have a dampening effect, particularly in the second half of the year.
On a recent episode of Localogy’s This Week in Local podcast, startup advisor Josh Scherman expressed very cautious optimism that 2024 may be better than 2023. Scherman helps SaaS startups find strategic exits, so his comments were more through an M&A than an equity funding lens.
“I think the instability of the interest rate environment over the last year plus has put a lot of people on pause,” Scherman said on the episode. “But that seems to be settling down now, which is a net positive for the M&A world…So I’m seeing some optimism.”