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| By Chris Graebe |
As we enter into the second month of 2024, I think we can all agree that one thing is for certain: Everyone has opinions on what is going to take place in the markets and the economy this year.
I don’t have a crystal ball, nor do I know exactly what every market is going to do over the next 11 months. But I DO know startups. And this is one corner of the market that is going to be wild.
I hinted at what I’m seeing coming down the road a few weeks ago. Today, I want to dive deeper.
I’m going to share my top five predictions for the world of early stage investing, and what I think will unfold in 2024!
We have lots to cover, so let’s get into my five predictions for the rest of 2024 ...
Prediction No. 1: Down Rounds
I believe that in 2024, we will see the strong survive and even thrive. But I also believe that the startups that were built for a different capital environment will struggle. Let me explain what I mean.
Before, the economy got cold for founders looking for early stage capital. The typical route was to raise a bunch of cash, focus on user acquisition and worry about profits at a later date down the round. Well, shocker — for venture capitalists and private equity ... or any investor for that matter, everything changed almost overnight, and the main focus became profits!
It almost seems silly that profits haven't been the main driver of investments the entire time, but the silly valuations and acquisitions made it possible for the startup world to forsake profits for well over a decade. Well, that has all changed. The number one focus now is, “How fast can a startup get to profitability?” And unfortunately for the startups that pushed to be all in on the previous model, they’re currently struggling.
I've actually had two startups I invested in back in 2020 call me and inform me that they HAD to do a "down round.” Doing a down round means they have to get the capital they need to literally keep the lights on, so they have to lower their valuation and in turn, dilute the positions of their early stage investors.
Now, that's never fun to hear as an investor, but you'd rather hear “down round” versus, "We failed, and the company is gone.”
Prediction No. 2: Acquisitions Are Coming
The average life cycle of a startup getting acquired is, on average, around seven years. As we step into 2024, we're entering the start of the eighth year since equity crowdfunding became a reality.
Also, it took around two to three years for actual legitimate companies to use this vehicle as a means to raise capital. But bottom line, we are starting to see companies growing, maturing and getting themselves in a position to be acquired by larger players.
Obviously, the top candidates for acquisitions are any startups that are smack in the middle of the artificial intelligence revolution, which I talk about a little further down. Right now, just about anything can happen with an AI startup!
Prediction No. 3: Strong Startups Will Enter Equity Crowdfunding
With the world of private equity and venture capital being hard to come by over the past couple of years, more and more founders are turning to equity crowdfunding as an option to secure capital.
In the earlier days of equity crowdfunding back in 2016, the concept of startup companies was new — they were unknown for the most part and needed an alternative to raising capital. But I can say that the unknowns and the general stigma around equity crowdfunding are falling by the wayside rather quickly.
I've even had hedge funds reach out to me and tell me they’re excited to introduce the startups they've invested in. You know things are changing when hedge funds are excited about bringing the crowd onto the cap table with them.
I really believe that equity crowdfunding will continue to bring in stronger and more mature starts.
Prediction No. 4: AI Will Continue to Be Red Hot
I think 2023 was just the start of the AI revolution. I do think we will begin to see startups that have quietly been building behind the scenes start to take center stage, especially the startups that aren't building on the back of the ChatGPT/OpenAI technology.
What's clear to me is that the deepest pockets in the world are investing in and scooping up any AI tech that can protect their IP. Tech has taken a hit and isn't the belle of the ball that it once was, which is why you see the largest tech companies in the world turning their attention toward AI.
And with stockpiles of cash and their willingness to take flyers on earlier stage startups, I think we will see some wild acquisitions in the news this year. There will be overbuying and competitive bidding.
Once 2024 comes to a close, and we look back on the year’s biggest events in the startup world, I wouldn't be shocked if we get to reflect on multiple stories of wild AI acquisitions.
Prediction No. 5: 2024 Is a Year to Invest in More "Sure Bets"
I think anyone who has ever invested in anything, be it stocks, real estate or even a startup, knows that there isn't a guarantee of a return. But there are times that you can look at a real estate deal or startup company and know that it's a much less risky investment.
So, I am making it my 2024 goal to try to find startups that perhaps have slightly higher valuations, but are stable and profitable. Meaning, if they are a little bit further down the road, then they will get my attention in 2024. Perhaps they are paying dividends or have massive cash reserves to weather whatever storms might come.
Don't get me wrong, I will continue to review high-growth startups, but I think the smart investors will be investing in tried-and-true sectors, also known as the "safe bets," in 2024.
And when someone is feeling frisky and wants to shoot for the moon-shot startup, well, that's when AI comes into play.
Until we really know what's coming around the corner for our economy, I believe we will see opportunities to jump into that won't have crazy 100,000% returns, but it will be more like hitting a single or double when they exit or IPO.
Until next time, my friend!
Happy hunting,
Chris Graebe
P.S. AI itself is a red-hot profit driver these days. But the industries surrounding and supporting AI development are where even more money can be made. In fact, we have a special presentation on this subject coming up on Tuesday, Feb. 6, at 2 p.m. Eastern. It’s free. But you need to sign up by clicking here.
