Looking Ahead
Predictions for VC and financial services in 2024
Last month, we reflected on 2023, sharing key lessons, takeaways, and insights from the year. Now, we turn our attention to the future – eagerly looking ahead to what 2024 might bring.
Our partners at Deciens are here to offer their well-informed predictions. They share their expectations of notable market shifts, discerning industry trends, and other significant developments that are poised to shape the VC and financial services landscapes in 2024.
Daniel Kimerling, Managing Partner
After a 14-year bull run party, fueled by low-cost capital, you’d imagine that the hangover would be extended. Historical evidence suggests that such market drawdowns typically span two to three years. Now that we’re in the third year, green shoots are starting to appear – the promising first signs of spring after a long winter.
In this context, I’d expect to start to see more activity in 2024. I anticipate a shift towards a more dynamic and prosperous market environment with a resurgence in IPOs, M&As, and financings.
Reflecting on our portfolio, 2023 was the year we were heads down and strategically focused on making big moves. It was a time of laying the groundwork, diving deep, and making significant strides behind the scenes. As we step further into 2024, we’re poised to reveal the fruits of all that hard work.
Ishan Sachdev, General Partner
We remain incredibly excited about the future. There is no lack of enthusiasm and appetite from founders to start new ventures, in technology and financial services specifically. Driven by the ongoing trends of digitization, improving customer experience, bringing innovation to areas that have been stagnant, and the need for solutions to meet changing global, economic, and industry circumstances, the potential to build impactful businesses in financial services remains strong. The end of 2023 has brought the most interesting set of new businesses we’ve seen all year to the top of our investment funnel, spanning both familiar territories and new, unexpected ones.
2024 will likely continue to be a challenging market for venture, albeit with the market starting to unlock and transaction volumes beginning to come back. The big question mark on everyone’s mind is the public markets, as new IPOs that trade well in the aftermarket will likely be the biggest driver of increased support across both private and public markets. In fintech, Stripe and Plaid are the two most consequential companies preparing to go public. While their IPO timelines are unclear, their market entries could serve as critical bellwethers, potentially unlocking significant opportunities if they perform well.
Vishal Rana, Partner
There will likely be two trends that started in 2023 and will continue to evolve in 2024: the exit of tourist investors from venture capital and the proliferation of AI.
First, the venture capital world is poised to witness a reversal. Venture capital tourists, both hobbyists and institutions, must decide if they will weather this market cycle after entering at the peak – most will not. At the same time, scouts and single deal sponsors that quickly graduated into emerging managers in the last few years will need to spend significantly longer proving their ability to repeatedly pick and secure allocations to winning companies. Both of these realities will inevitably reduce the number of market participants, meaning that companies will face more discerning and disciplined investors. The arduous trials of 2023 will become business as usual: make sure your product does something useful, is of high importance, and does so while creating more value than is required for delivery.
Secondly, AI is positioned to become a fundamental component of productivity tools. This will improve capital efficiency as fewer people are required to build a company. As an early-stage investor, this is particularly great news – these companies will be built in the age of LLMs, and much like companies that were born with the internet or social media as givens, will be value-creating challengers to their antecedents attempting to integrate the technology into previous generation tech stacks and organizations.
And here’s a hot-take: although cutting-edge AI will continue to be the bastion of a few well-funded companies, the benefits of LLMs and similar helper or agent solutions will come to most without needing to use the latest and greatest model. The proliferation of good-enough fast followers that focus on far less sexy specs like training data fidelity, security, and ease of integration will, as a practical matter, be far more useful than premium players with the best parameter size and performance. It will be exciting to see who puts their development chips in performance vs. usefulness.
