2024 Venture Capital Outlook by Mighty Capital

This article is based on >500 interactions with entrepreneurs building B2B companies and raising Series A.

2023 was a dynamic year for venture capital (VC), with market forces working to establish new equilibrium points amidst macroeconomic headwinds and uncertainties. The beginning of 2024 will see the continuation of these tensions, with healthy recovery trends getting established. Here’s our outlook for the year ahead: 

• The VC landscape is in upheaval. Big players face scandals, senior partners make a swift exit, and small firms struggle for survival. Tired of investor greed, entrepreneurs seek those who walk the talk.
• Seed-stage recovery is underway, driven by business model innovation and realistic valuations. SaaS faces challenges, AI and edge computing disrupt the game, demanding more security and privacy.
• Series A recovery hinges on distribution and sales innovation. Traditional tactics are proving ineffective and are being replaced by product as a major distribution channel for landing accounts.
• Later stages need a spotlight on governance due to scandals in 2023. Transparency and scrutiny are on the rise, especially with technology permeating regulated industries.
• Despite challenges, and to some extent because of them, we’re optimistic. Dropping interest rates make VC investments attractive, and an election year typically sparks hope for a brighter future.

1/ The great reset: venture capital imploded

Entrepreneurs are fed up with investor greed. They seek investors with industry expertise, executive access, and more than just capital. It's about walking the talk, showing up and rolling up sleeves.  

LPs seek managers prioritizing cash-on-cash returns over speculative futures. They find it difficult to navigate the plethora of emerging firms and have gotten tired of the rich fees and carry structures of established VC firms. Small VC firms are fighting for survival, struggling to differentiate and scale strategies that are, for the most part, too niche. 

Big VC firms are tangled up in scandals and navigating underperformance. With massive funds, they need to take huge risks, then blame monumental failures on the cost of doing business. The guard is changing because senior partners became rich off exits in the last bull market and don’t have the energy required for rebuilding. They’re leaving today’s harsh reality to the next generation, who lack the track record. 

A wave of VC closures looms. We believe that this opens opportunities for firms that embrace a value-first ethos. Mega-funds, designed during the bull market to afford the price for talent excellence, will be replaced by capital-efficient firms like Mighty Capital, who use a community-based approach to leverage talent. 

2/ Seed-stage recovery: business model innovation

Seed-stage recovery is underway, fueled by innovative business models and sensible valuations. SaaS faces challenges as non-essential subscriptions get axed, a trend likely to speed up with AI. We anticipate a surge in demand for usage-based business models.

Edge computing is causing a stir in SaaS. Customers crave control at the edge for faster processing so traditional cloud services no longer cut it. We expect a rising need for security and privacy at the edge.

3/ Series A recovery: product as a distribution channel

Series A faced headwinds in 2023 because of heavy cap tables, inside investor dynamics and outdated valuation expectations, but the outlook brightens in 2024. Newly minted startups forged with limited funding in a challenging economic climate will raise their Series A in the next couple of years.

The ones who will succeed need to overcome a huge hurdle: scaling enterprise sales in the current environment. Traditional enterprise budgets owned by marketing, IT and finance are shrinking and outdated tactics like cold calling and email blasts are relics. Entrepreneurs must pivot to tap into fresh pockets, and many turn to product teams, whose wallets have been loaded in order to execute digital transformations. 

Product-led growth was just the tip of the iceberg. The importance of product in business has skyrocketed, changing the game for top companies globally. Digital transformations propel product teams at Fortune 1000 into the limelight, positioning them as the new power players with massive budgets. Consider that the number of Chief Product Officers appointed at Fortune 1000 companies has skyrocketed by 10X in just 3 years, now standing at a whopping 30%. Their arsenal has expanded too, with a staggering 6,000 tools at their disposal, a 10X surge in just 5 years. 

We believe that the product function is at an inflection point and that product is emerging as a major distribution channel for the next generation of companies. 

4/ Later stage recovery: spotlight on governance

In 2023, scandals and drama, from FTX to OpenAI, painted a rich tapestry. It's evident that later-stage recovery demands heightened transparency and scrutiny in the governance of emerging companies. This is particularly crucial as technology permeates all industries, even those under strict regulations. 

We believe that the path forward necessitates a keen eye on accountability and governance.

5/ An auspicious start

After these reset years, optimism is warranted. Dropping interest rates boost the allure of VC investments, and with an election year ahead, people anticipate a brighter future.

Product and digital innovation stay robust, with key strides in AI, Blockchain, security, and perhaps even sustainability. When it comes to AI, we believe that Fortune 1000 companies will invest in data governance and seek to leverage strategic partnerships and acquisitions to scale their AI initiatives. We provide a few relevant examples from our own portfolio below.

Examples of strategic partnerships driving AI at scale in the Mighty Capital portfolio.

Here's to recovery in 2024, and happy holidays to all! Onward and upward.

 ~ SC & Jennifer