Top 5 Tech and Startup Trends in 2024: From AI Cooling Down to IPO Challenges
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2023 was a dynamic year for the tech industry and venture capital, marked by the rapid rise of artificial intelligence and the dramatic decline of startups both large and small.
From many perspectives, we expect 2024 to be a year of gradual stabilization. The hype around artificial intelligence may subside, while we also hope to see a reduction in layoffs. The IPO market may slowly recover, and after nearly two years of reduced funding, we anticipate venture capital to stabilize.
Here are the top five trends we're watching in the new year. Perhaps the most notable aspect to watch in 2024 is the changes in artificial intelligence and its investment landscape.
Despite investment rounds exceeding $100 million becoming commonplace in 2023, many investors are at least discussing the possibility of a market correction. This is due to continuously soaring valuations, coupled with widespread skepticism about how many successful enterprises the generative AI market can truly sustain.
Of course, companies like OpenAI and Anthropic may continue to attract investments at extremely high valuations, but the 'fear of missing out' (FOMO) among investors in this sector appears to be waning. Many believe that other changes in the industry could further influence investor sentiment. Even as 2023 progresses, many investors appear to be losing interest in marketing or sales platforms that simply add AI features.
Some VC investors anticipate that the legal and regulatory challenges AI companies may face in the U.S. and globally could slow the influx of substantial funding into AI startups.
Others point out that during the mobile revolution over a decade ago, the biggest winners at the infrastructure level were ultimately established tech companies. While there were startup successes like Twilio, many large tech firms benefited the most from the last wave. Of course, these large tech companies have already played a significant role in the field of artificial intelligence, investing billions of dollars in various AI startups. Companies like NVIDIA, Salesforce, Microsoft, and Google have been very active, which is likely to continue driving increased funding in the AI sector in the new year.
It's important to remember that AI is costly. Startups need data, computing power, talent, and various other resources—all of which big tech companies can provide.
If large companies stop investing and venture capital also reduces its input, 2024 could bring a harsh winter for many hot AI startups. While many expected to see more startups shutting down due to changes in the funding environment (as seen in the Convoy case), what about venture capital firms themselves?
The news of OpenView laying off employees and halting investment activities, which broke in December last year, seemed to cause some shockwaves in the venture capital world. Its uncertain future may draw significant attention from many.
However, insiders in the venture capital industry anticipate similar headlines in 2024. The prosperous years of 2020 and 2021 gave birth to many new VC firms, many of which are now seeing their investments decline on paper after numerous startups had to cut valuations. These companies won't be able to raise new funds, forcing some to shut down operations or potentially sell their stakes in other companies prematurely.
Even some large, established VCs have had to alter their fundraising plans this year to adapt to the changing market, as San Francisco-based Founders Fund and New York-based Tiger Global announced reductions in their new fund sizes.
More situations like this are expected. When capital is cheap, venture capital appears to be an exciting business, but when markets readjust, the risks become glaringly apparent. Since we began tracking tech industry layoffs in early 2022, at least 300,000 tech workers in the U.S. alone have lost their jobs. We had hoped layoffs would end by 2024, but with startups still shutting down in late 2023 and even large companies making cuts before the holidays, it appears the layoffs aren't stopping.
Fortunately, we haven't seen layoffs on the scale of November 2022 and January 2023, when tech giants including Amazon, Alphabet, Microsoft, Meta, and Salesforce eliminated tens of thousands of positions. It's clear the tech workforce remains under significant pressure - while some cuts represent strategic adjustments, others are sweeping reductions.
With the IPO market remaining sluggish in 2024 and startups continuing to struggle with funding, we expect layoffs to keep increasing for the foreseeable future. As we've discussed, 2023 was a year of negative growth. Startup investments across nearly every sector, stage, and geography saw significant declines compared to 2022, falling far short of the 2021 peak.
However, as we enter 2024, it's much easier to weave a positive narrative about funding growth compared to last year. In sectors like consumer e-commerce where investment has shrunk dramatically in recent quarters, even modest increases could be portrayed as sharp rebounds.
We're also hopeful that overall startup investment will rise in 2024. With recent tech stock rallies fueled by expectations of potential Federal Reserve rate cuts, we may finally see some resurgence in IPO activity. We might see some IPOs return in 2024, but don't expect the IPO market to recover rapidly.
This is the latest perspective we've heard from those closely watching the market, especially given the mediocre performance of companies like Klaviyo and Instacart that went public in 2023 - these two being the only major venture-backed IPOs since late 2021.
In the current environment, capital market investors have become more selective about companies going public, industry insiders tell us. Specifically, they're more interested in profitability than growth-at-all-costs, and they generally look for larger, more mature companies that can maintain strong market capitalization. This means companies that can postpone their IPOs may delay until 2025 or even later.
However, there are currently about 1,500 private companies on the Crunchbase Unicorn list with valuations reaching or exceeding $1 billion, all of which will eventually need to go public or exit through other means.