2024 may well become the year of the bootstrapped founder.
The startup “mass extinction event” that doomsayers have predicted for two years is likely to ramp up in 2024. New founders facing a brutal funding environment may instead opt to bootstrap their growth.
Over 55,000 VC-backed companies are operating in the US right now, according to the latest PitchBook-NVCA Venture Monitor. Many of them are aggressively competing for funding in a slow dealmaking landscape.
At the same time, over 2,000 VC firms effectively halted making new investments in startups in the first nine months of 2023. Approximately 3,200 startups failed in 2023, and there’s even a burgeoning industry dedicated to helping founders wind down their companies.
Data on capital availability, seed deals and exits all point to one conclusion: The US has too many startups.
Late-stage and venture-growth companies are demanding more than twice as much capital than is being supplied by investors, the report found.
On the supply side, the LP retreat from venture has made GPs more cautious, and nontraditional investors like hedge funds and public-private crossover investors have refocused allocations away from the asset class.
With the exception of deals in the generative AI and machine learning segment, which are still seeing aggressive valuation step-ups, VCs are doing more due diligence and being more cautious on valuations. Compared to deals in 2020 and 2021, firms now require companies to achieve cash flow break-even at earlier deal stages and emphasize a path to profitability.
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