Investors say web3 and hype are in 2023, high valuations are out — maybe?

Last year it was tumultuous for venture capitalists, to say the least. The ecosystem watched as startup funding dried up, held its breath as a $32 billion venture-backed company evaporated almost overnight and witnessed one of the biggest startup acquisitions of all time.

Did you hear someone yell “bingo”? Probably not. It’s unlikely that many investors came close to predicting what will play out in 2022. But, hey, there’s always next year.

It seems that we are entering another interesting and turbulent year: the crypto market is hanging in the balance; everyone watches with popcorn in hand to see which unicorn will topple over next; and the hype surrounding artificial intelligence continues to grow.

Some think 2023 will just be the start of an entrepreneur winter and overall economic recession, while others think we could see some stabilization as things return to normal by the middle of the year. But who’s to say?

To find out how investors are thinking about the year ahead and what they’re planning, we asked more than 35 investors to share their thoughts. Here is a selection of their responses, lightly edited for clarity.

How does the current economic climate affect your deployment strategy for the coming year?

US-based early-stage investor: My goal is to allocate the same amount every year, but the climate has led to a lot of less interesting companies/founders raising rounds, so I’ll probably allocate 20%-30% of what I want.

Bruce Hamilton, Founder, Mech Ventures: We are considering reducing the size of the checks to double the number of investments from 75 to 140.

Damien Steel, Managing Partner, OMERS Ventures: We believe that there will be incredible investment opportunities available in the coming years and we are excited to continue the same pace of deployments that we have had in the past. I expect international funding in Europe to slow over the next year as GPs are under pressure. We see this as a great opportunity to lean on.

VC based in California: New deployments have been halted for us and remaining funds are being channeled into subsequent rounds for our existing portfolio.

Ba Minucci, founder and general partner, UMANA House of Funds: The current economic climate has had a hugely positive impact on our deployment strategy. I’m excited for the first quarter of 2023 and all of 2023 for the opportunities that lie ahead. The end of 2022 was a great awakening for the founders. It’s time to be disciplined with burnout and very creative with growth. Times of scarcity create the best founders.

Dave DeWalt, Founder, MD & CEO, NightDragon: We will not change our deployment strategy much despite the macro conditions. This is for several reasons, most of which are rooted in the continued importance and investment in our core market category of cybersecurity, safety, security and privacy.

We see a huge market opportunity in this space, which has an estimated TAM of $400 billion. This opportunity has remained strong and expanded, even as the larger economy struggles, as cyber budgets have remained very resilient despite company cuts in other budget areas. For example, in a recent survey of CISOs in our advisor community, 66% said they expect their cyber budgets to increase in 2023.

Innovations beyond what is available today continue to be demanded as the threat environment deteriorates globally. Each of these factors gives us confidence in continuing to invest and deliver results for our LPs.

Ben Miller, Co-Founder, Fundrise: The economic climate will get worse before it gets better. Although the financial economy has already changed, with multiple returns to historical norms, the real economy will be the next to turn downward. That will lower growth rates or even lower revenues, increasing valuation compression even more than we’ve already seen so far.

We respond to these circumstances with a new solution: we offer unlimited SAFs to the most promising mid- and late-stage companies. While SAFEs are traditionally used for early-stage companies, we think founders will be very receptive to expanding their runways with the fastest, lowest-friction investment solution available in the market.

Dave Zilberman, General Partner, Norvest Venture Partners: Ignoring the macroeconomic climate would be reckless. As such, given that we are multi-stage investors, we see the current market as an opportunity to increase the weight of early-stage investments in seed and Series A stages.

Economic barriers will not prevent the need for more development solutions; developers support the basis of competition in the digital world. As developer productivity and efficiency become even more important, solutions with a clear return on investment will be at the forefront.

What percentage of unicorns aren’t worth a billion dollars right now? How many do you think will fail in 2023?

Kirby Winfield, Founding General Partner, Ascend VC: It must be like 80% is no longer worth a billion dollars if you use public market services. I think maybe 5%-10% will fail in 2023, but maybe 40% by 2025.

Ba Minucci, founder and general partner, UMANA House of Funds: We started 2022 with five companies in the portfolio that had “unicorn status”, and two of them have already lost that status. I believe this data points to a general theme – that two out of every five unicorns will lose, or have lost, their billion dollar valuation. I see this trend continuing in 2023.

Harley Miller, Founder and Managing Partner, Left Lane Capital: Up to one-third, I’d say, is definitely worth less than that, especially for companies with a paper value between $1 billion and $2 billion. Companies with high burn rates and structurally unsound unit economics will suffer the most (eg, rapid commercial delivery). It is not just whether they will continue to have “unicorn status”, but whether they will be funded, at any value, over the period.

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