The last few years have been a bit of a rollercoaster for tech entrepreneurs and investors. The highs were high, the lows were low, and the future seemed uncertain. Luckily, Vintage Investment Partners, an Israel-based fund of funds and growth investor, shared a series of graphs posted by Asaf Horesh (links at the bottom of this post), highlighting the insights and market trends of the tech and venture industry in the past four years with a look ahead at 2024 and beyond. So far, the 2020s have brought a perfect storm of disruption, irrational exuberance, sobriety, and everything in between.
2020 – The Upstream Tech Bubble
The decade opened with the macro investment world awash in cheap capital from a decade of “free money” policies in a robust pre-pandemic environment. Then, in March 2020 the market shifted as COVID-19 became a global catalyst. The pandemic shuffled the deck. Lockdowns brought the rapid rise of work from home, and some verticals saw rapid gains: video conferencing, gaming, remote work/events and food delivery.
Investors were yield-starved and the VC/growth markets became a bright neon sign. Startups with grand visions but negligible revenue were scoring mega-rounds at unicorn valuations. Money sloshed upstream at a historic rate. The “Upstream Tech Bubble” had to burst eventually, and eventually it did.
2021 – An IPO/SPAC Frenzy, endless supply of capital
The free money kept flowing in 2021, driven by a seemingly endless supply of capital, mostly from “tourist” investors in growth stages. Valuations were turbocharged by Covid forcing so much activity online. Startups raced to capitalise on the frothy markets by going public via IPOs or SPAC mergers. Valuations reached astronomical heights as institutional investors piled in, creating a fear of missing out. The music couldn’t last forever though. 2021 also coincided with the rise of crypto, NFTs and other speculative investment opportunities.
2022 – The Reckoning
The downturn in the public market, that started at the end of 2021 continued in 2022 only hit the private VC market in mid-2022. Growth and late-stage investing were in charge of most growth in 2021, and also in charge of the decline in 2022. Inflation came roaring back, forcing the Fed to start ripping the band-aid off by aggressively hiking rates. Startups found themselves in a vicious recession, growth stalled, and valuations got slashed. Many high fliers were exposed as unprofitable zombies. The harsh reset culled the herd as investors got defensive. It was an overdue reckoning after years of excess.
Despite this market reckoning, 2022 marked the peak for capital raised by VC funds in the U.S. and Israel.
2023 – Signs of Life
While 2022 was brutal, the VC market showed green shoots last year as it adjusted to a new normal of more disciplined investing. Funds became highly selective, favoring sustainable unit economics over grandiose pitches. Valuations remained suppressed but capital started flowing again to the real differentiated companies. Talk of an “investor strike” was overblown.
Despite notable IPOs like Klaviyo and Instacart, the market window stayed shut in 2023.
Prominent VC investors who have provided little liquidity for LPs with a closed IPO market, turned to the secondary market to sell their shares, often at steep discounts, exposing that many unicorns are not worth their previous price tags.
2024 and Beyond
Looking ahead, I have cautious optimism for VC landscape. The sugar high of infinite capital is gone, and that’s probably for the best. Investing will continue to be fundamentals-driven – finding those precious companies with sustainable competitive advantages and letting the outsized returns come over time.
The latest quarterly data is giving us a glimmer of hope that the VC/startup financing markets may be finding their footing after an extended tumble. While still well off the stratospheric levels of 2021’s peak frenzy, investment paces in the major startup hubs of the US, Europe, and Israel are showing signs of stabilisation at a pre-bubble normal.
After watching countless zombie unicorns get mercilessly slashed down over the past couple years, a return to more discipline in the investing world is welcomed by many. But we’re not out of the woods yet. The current stability is still fragile. Funds remain highly selective as they adjust to the new sustainable normal.
I’m watching the signals closely and with cautious optimism. The technology revolution shows no signs of slowing. If anything, the forced shakeout cleared the ‘tourist investors’ and ‘lifestyle entrepreneurs’ to refocus innovators on truly transformative areas like AI, computational biology, next-gen computing, climate solutions, and so on.
Smart investors will continue finding amazing founders and backing them to create the world-changing platforms of the future. It may just require more patience but then again, even in today’s market we’re seeing companies like French open source LLM startup Mistral go from $2 billion valuation at seed to $10 billion valuation in the course of a year! But that’s the exception rather than the rule, and investors still betting on unicorn pipe dreams are in for more pain.
I’m excited about the world-changing companies that will get built in the next couple of years. The combination of reduced prices, technology advancements like LLMs and talent that has become available for different reasons, make it a truly unique time to build and scale a company. I cover it in detail in my post on how pre-seed made a comeback in 2024.
Links to full slides for Vintage’s “State of the Venture Market”:
- Part 1 – A Comprehensive Overview
- Part 2 – Unicorns and Valuations Deep Dive
- Part 3 – Navigating Exits
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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