There’s a lot to consider for tech investors assessing potential startup investments in 2024.
Many firms need to deploy capital, but last year was sluggish with shrinking valuations and a slow IPO market.
This year brings potential impact from elections, geopolitical instability, and an uncertain interest rate environment.
Meanwhile, many firms are betting big on the AI gold rush — that could be overhyped or underhyped, depending on who you ask.
Such was the backdrop for a panel discussion hosted by TiE Seattle at Bellevue City Hall on Wednesday. Speakers included:
- Kellan Carter, founding partner at FUSE
- Marius Ciocirlan, managing director at Techstars Seattle
- Joe Horsman, biotech investor at Madrona
- Carly Kiser, managing director, innovation economy banking, at J.P. Morgan
- Julie Sandler, general partner at Pioneer Square Labs Ventures
Read on for our key takeaways.
AI
The panelists poked fun at all the hype around AI — “we do like the category that must not be named,” Carter joked — but they clearly see potential. Global funding to AI startups in 2023 hit nearly $50 billion.
“The ways that you can solve problems or create opportunity or deliver insights that were really hard before — you now can do, very easily,” Sandler said.
Ciocirlan said Techstars is looking for companies that can disrupt industries with longstanding incumbents. “Can that whole industry be reimagined now, because of changes in platforms and technologies?” he said.
But whether the new hot tech trend is AI, blockchain, quantum computing, or something else, Carter said the fundamentals don’t change for his investing thesis.
“What we really focus on is founders that build products that their customers need,” he said.
Macroeconomics
Asked about potential impact on startups from elections in 2024 and geopolitical conflicts across the globe, the panelists agreed that CEOs just need to focus on what they can control.
“You need to make sure that you build your business such that you can thrive no matter what comes,” Horsman said.
However, founders with ties to countries involved in ongoing wars could face challenges with running their startups and attracting venture dollars. Ciocirlan said startups from Israel and Ukraine that participated in the most recent Techstars Seattle cohort had to take time off or travel back home.
Kiser added that macroeconomic forces play a factor for startups that want liquidity options, like going public or getting acquired. “We are hopeful [for] some sort of stability, particularly in the Middle East and Europe,” she said. “I think that that is our biggest risk.”
Layoffs
There may be a silver lining for startups amid the barrage of tech layoffs over the past year that are showing no signs of stopping in 2024.
“So much talent — at least in the Pacific Northwest — is locked up in corporate companies,” Ciocirlan said. “And I see this as a huge opportunity.”
Horsman suggested looking for engineers at companies that have seen their valuations sink recently. “That total [compensation] is like one-third cash and lots of stock that is never going to be worth anything,” he quipped.
Optimism
Despite the layoffs and venture capital slowdown, it could actually be a great time for early stage startups.
“We’re seeing different businesses get built. This is a return to normalcy.”
Unlike later stage companies eyeing an exit, Kiser said younger startups don’t need to worry as much about interest rates or broader public market forces once they’ve raised their first round of capital. She also pointed to startups that formed in the aftermath of the financial crisis — Airbnb, Stripe, Uber, etc. — that were forced to be innovative and durable.
The successful companies to come out of this era will need to rely on actual revenue for growth, versus just investor cash.
“We’re seeing different businesses get built,” Horsman said. “This is a return to normalcy.”
Pitch perfect
For founders gearing up to raise venture capital this year, the panelists offered some advice in terms of what gets them excited in a pitch meeting.
Horsman said he likes startups that have proprietary access to data, particularly when paired with AI, and founders who can step in their customer’s shoes. “It’s really having empathy and listening to who you’re building for,” he said.
Similarly, Ciocirlan asks himself if the founder really understands the customer and market. And he assess speed. “Are they moving fast enough to validate some of their assumptions?”
Another potential signal: a founder’s ability to attract top-level talent.
“We’re looking at your first, second, third hires,” Carter said. “If smart people are following you as a leader, there’s so much signal to that because that starts to compound toward success.”
Sandler wants to see synergy between a founder and the vision, especially for an early stage startup.
“You got to have a sense that this person is the inevitable human being who’s going to do something that has never been done before,” she said.
