The Worst of Times, The Best of Times

Special Edition: The Friday Finance Deepdive

Typically, on Fridays, we take a break from Finance and discuss the founder's mental health.

That will continue next week!

But today, I'm feeling extra interested in the data on the market.

So, I hope you're forgive me as this Friday,

We dive DEEP into the Financey Stuff:

(Heads up - Today's newsletter is also a little longer than it typically is, primarily because I'm bringing in a lot of external data. If that's not your speed, feel free to skip this one! Or read on for some deeper insights into the current startup market trends. We'll be back to the regularly-scheduled short-form programming next week.)

For those in the venture-backed startup space, you may already be familiar with Peter Walker and the insights he provides via Carta.

​Carta is a tech platform that houses the majority of startup cap table data.

And Peter regularly shares reports based on that anonymized data

On LinkedIn, in a newsletter, and in quarterly reports.

(I highly recommend all 3.)

Well, this past week, we encountered multiple Data Doozies:

1) Massive headcount exodus from startups:

More employees LEFT startups than joined them in 2023.

Said another way,

The startup industry - which is arguably defined by high-growth

Essentially SHRANK in 2023.

So if it felt like you were hearing a lot about layoffs despite also hearing the unemployment rate being low

You aren't crazy - that low unemployment rate wasn't a thing in startup land.

(There are more charts in Carta's Startup Compensation Report that describe this in more detail and show huge layoffs and attrition numbers actually happening in 2022 and then declining slowly in 2023. But since hiring essentially halved in 2023, overall headcount has continued to decline, leading to the numbers above.)

2) The startup body count is getting intense:

Startups shutdowns are rising in 2024.

From 2020-2021, only 10-19 startups who'd raised $5M+ tended to close each quarter.

In 2022, that range went from 16-27 per quarter.

And the last quarter of 2023, we hit a whopping 54 startups of this size that went under.

Now, in 2024, we're only 2 months in

And Carta has already recorded 61 startup shutdowns.

If this shutdown trend increases linearly throughout March, we'll be looking at 90+ startup shutdowns in Q1 2024.

If that's the case, startup failures would be nearly doubling in the latest quarter.

And finally, 3) A glimmer of hope for fundraising:

VCs are actually signaling a readiness to invest again.

(VCs "call capital" from LPs when they want to use it to invest in startups.)

According to Carta, VCs called more capital in the past 3 months than they have since 2022.

Which is a sign that they may be more willing to invest in startups,

Which may provide a lifeline to teams who really need some venture backing

And bring back the growth engine for high-potential startups who've had to stagnate to stay alive

AND may get this industry known for growth

Actually -you know- GROWING again.

But what does all this mean?

My take? Well, I'm not an investor or investment advisor

(Thank goodness...)

But here's what I think:

Investors have been stingy with funds because the ROI on startups hasn't made sense in recent years.

High interest rates created competitive alternatives to investing in riskier asset classes like VC.

A crappy IPO market meant a pessimistic expectation on exit value, lowering valuation at all stages.

This dried up the fountain of the funds flowing into the startup industry,

And put many teams in a precarious position.

Many weren't able to get the funding they expected.

Many cut headcount and focused on becoming profitable.

And those who couldn't acquire funds or become profitable in 2022-2023 are now dying off. Rapidly.

(Which I predicted would happen in 2022 by the way!)

But for those who have managed to survive,

VCs are seeing some good signs in the IPO market,

And they're feeling optimistic about getting some good deals done.

Thanks to Reddit's recent IPO success, there's a reason to believe this optimism may continue.

🤞

So in sum, it's been a very tough time,

Not everyone survived,

But for those who stuck it out or who are just starting now,

There are some signs things may be getting better.

And now THAT's enough financey stuff for this week.

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