Zombies, fire sales, and scrappiness: Here’s what venture capitalists can expect in their ‘year of the dragon’

Zombies, fire sales, and scrappiness: Here’s what venture capitalists can expect in their ‘year of the dragon’

After a record-shattering 2021, the past six months have been bumpy for the venture capital industry. From FOMO-driven check-writing, we’ve entered a parallel universe

After a record-shattering 2021, the past six months have been bumpy for the venture capital industry. From FOMO-driven check-writing, we’ve entered a parallel universe

of investor caution, steep valuation resets, and startups battling for runway. Given the uncertainty plaguing the global economy–not to mention the absence of anything

of investor caution, steep valuation resets, and startups battling for runway. Given the uncertainty plaguing the global economy–not to mention the absence of anything

resembling a crystal ball on my desk–attempting to predict what will happen in 2023 might be considered reckless. However, given that Techstars invests so early, in

resembling a crystal ball on my desk–attempting to predict what will happen in 2023 might be considered reckless. However, given that Techstars invests so early, in

hundreds of companies a year (~600 in 2022 alone), and across just about every vertical imaginable, we think we see trends before the rest of the market. With that in mind, here

hundreds of companies a year (~600 in 2022 alone), and across just about every vertical imaginable, we think we see trends before the rest of the market. With that in mind, here

are seven predictions that we believe will shape the year ahead.    The VC industry will contract For over a decade, the number of VC firms has exploded. Now all the

are seven predictions that we believe will shape the year ahead.    The VC industry will contract For over a decade, the number of VC firms has exploded. Now all the

indications suggest significant consolidation is on the way. Perhaps 50% or more of existing VC firms–in particular those with less than $100M of assets under management–will

indications suggest significant consolidation is on the way. Perhaps 50% or more of existing VC firms–in particular those with less than $100M of assets under management–will

cease to functionally exist over the next few years, with many becoming in effect “zombie funds” that manage their investments but cannot raise fresh capital. In 2022 so

cease to functionally exist over the next few years, with many becoming in effect “zombie funds” that manage their investments but cannot raise fresh capital. In 2022 so

far, 62% of the capital raised went to just 6% of VC funds. As the downturn deepens, fund performance drops, and fewer $1 billion+ companies are created, even more VCs will likely

far, 62% of the capital raised went to just 6% of VC funds. As the downturn deepens, fund performance drops, and fewer $1 billion+ companies are created, even more VCs will likely

struggle to raise their next fund–and shutter. Indeed, many small and boutique VC firms Techstars knows have already told us that they won’t be raising another fund.

struggle to raise their next fund–and shutter. Indeed, many small and boutique VC firms Techstars knows have already told us that they won’t be raising another fund.