By Maria Irene
According to Tom Loverro, a seasoned investor and entrepreneur, a mass extinction event is coming for early and mid-stage startups, which will make the 2008 financial crisis look quaint. In a tweet storm, Loverro explains why late 2023 and 2024 will be a difficult time for startups and offers detailed advice to founders on how to survive the impending die-off.
Loverro cites a survey by January Ventures, which found that 4 in 5 very early-stage companies have fewer than 12 months of runway. This, combined with the fact that many startups raised nearly 2 years of cash in 2021 and 2022, means that a flood of startups will come to market in late 2023 and 2024 to raise capital, but more will seek funding than will actually receive it.
According to Loverro, the situation will be worse than the 2008 financial crisis for venture-backed startups. He explains that while the GFC was centered on Wall Street, private startup valuations, round sizes, and burn didn’t go bananas in the years leading up to the crisis. However, in 2021, for startups, the situation was more toxic than the GFC, and the hangover will start later this year and will be more severe.
PREDICTION: There's a mass extinction event coming for early & mid-stage companies. Late '23 & '24 will make the '08 financial crisis look quaint for startups. Below I explain when, why & how it will start & offer *detailed advice to founders* on surviving the looming die-off. /1
— Tom Loverro (@tomloverro) January 31, 2023
Loverro also addresses the myth that the large amount of dry powder will drive valuations back up. He argues that funds won’t deploy their capital in one year, and many funds have already been partially or mostly invested.
To survive, Loverro suggests that early-stage founders should take the following seven steps:
- Raise money now or sooner than expected, before the Great Flood of 2023
- Cut burn even more, focusing on core R&D
- Focus on survival, not valuation
- Bring on seasoned operators in C-level roles
- Trade better unit economics for growth
- Play your cards right, survive, and go on offense
- Be decisive
In conclusion, Loverro’s tweet storm serves as a wake-up call for startups to be prepared for the impending mass extinction event. By following his advice, founders can increase their chances of survival and come out stronger on the other side.
#powell #startups #financialcrisis #avalanche #GFC #blockchain
Representational Photo by Jason Goodman on Unsplash
