If 2022 was the year of the startup layoff, 2023 is going to be the year of the wind down. It will suck — for team members, for founders, for customers of these companies, and for their investors — but by the end of the year we’ll have gotten through the toughest part of the correction.
I wrote this paragraph because we’re all coming back to work after a holiday break and wanted to preemptively address one of the two questions that seem to be taking 5–10 minutes at the start of every meeting. (Regarding the second question: yes, it was a very nice time with family).
I say this all very much being a technology optimist. There are many startups accelerating their growth right now, and founding teams working on ideas that will become the next generation’s defining platforms. But as professional investors we can’t avoid responsibility for managing out the realities of our portfolios. If we avoid these conversations you have no hope of turning a company around, finding them the right home where the work can continue, or assisting executives with the stress and moral choices that come in a struggling business.
Founders in situations where profitability isn’t a near term strategy should be working with their VCs to understand Are There Milestones We Can Hit Where There’s More Capital Available To Us From Existing Investors and What Milestones Do We Need To Hit For Us to Attract New Venture Capital, while also building their own direct relationships (remaining fully dependent on your investors for access to capital markets is always a risk).
Founders, make the toughest decisions early in this year. If you don’t have the energy left to pivot or cut to profitability, is there another leader at the company who can? Be willing to reset valuations now if the incoming capital is from a good faith partner and it gets you past the next 12–18 months.
2022 is done. 2023 shouldn’t be status quo.