I wanted to share what I'm seeing from a market perspective and what I'm seeing from many other founders around me. Caveat, my perspective is skewed towards high-tech startups and specifically the world of Web3/Crypto.
For the past 12 months, funding markets have drastically dried out for a few reasons. Investors are seeking money in safer places especially as the options are available (~4% gov bonds). Primarily, the action has slowed down in the Series A/B rounds where right now many firms are struggling to identify which startups are going to be able to raise the next set of rounds based on their ability to generate sufficient yield and growth. Both of which have been slow for many businesses outside of Meta, Microsoft, and Alphabet. I expect that the big will get bigger over the course of the next few years, as they are all incredibly well-managed, now much-leaner (due to layoffs) with plenty of cash & strong revenue streams.
[Seeking safety]
On the complete other side a different phenomenon is taking place, and that is AI. Anyone who is paying attention is recognizing the swift and powerful force AI is and will become. Starting a business, launching a product, and generating revenue is trending towards infinitely easier. A 1-2 person team can launch a product for an audience and immediately start charging, but this also means a LOT of competition on the ground floor. If your team can create a product, so can multiple teams around the world. The pace of competition for very early stage startups is heating up. This is good and bad, because we will likely have 10,000s of software startups being created solving problems everywhere, but the ability to capture value and create long-term durability as a business has become much much harder.
[From Packy McCormick's Small Apps, Growing Protocols]
It is the graduation from small application that generates enough revenue for a few founders and maybe an employee or so to a growing business that is going to become the most difficult challenge in today's market. Additionally, with many companies using AI as their feature to attract users, many of these applications will get copied by others or get adopted by larger companies who recognize it's value. See all the ChatGPT iOS apps that got killed when OpenAI released their own app. Or how many open source Image Generation models have come out since the beginning of the year. Or how Lensa was copied by other apps and basically resulted in a 90% decrease in revenue for them in a few short weeks.
Many people will need to rethink what they believe is possible as a startup and what their goals are. Do you really want to raise funding to try and become a Unicorn in a unique market or does it make more sense to bootstrap a reasonable business and become a studio that can create many such applications. I, also, recommend reading Packy's article that I linked above that might be a solution.
[Navigating choppy waters as a team in the dark]
So, how does this play out? I'm not sure. Typically, in bear markets we see quite a bit of consolidation as cash-rich companies buy up talent and technology to continue their lead. I suspect a good bit of this will happen in the next 12 months before things start to turn around. I see plenty of founders struggling and grappling on how to navigate through this.
As to what am I doing? The same thing, trying to navigate the waters trying to identify the best way to survive and thrive as a business.
What do you see?