Editor’s note: Startup Spotlight is a regular part of TechWire’s Startup Monday package. Today we feature a post from venture capitalist and entrepreneur David Gardner , the founder of Cofounders Capital in Cary and.
CARY – Looking back over 2022 all I can say is, “Man what a ride!” The Chinese have a saying which some say is a blessing but others say is a curse: “May you live in interesting times.” One thing is for sure, we were certainly blessed and cursed in 2022.
It was a year of “bangs”. In fact, the year started off with a bang. It was the bang of business booming. I had not seen valuations on SaaS ventures at 12 to 15 times revenue since the 90’s dot bomb bubble. The housing market went crazy and employees were resigning in droves to garner ever higher salaries as employers fought for what limited talent was available. For the first time ever, I wrote that a lack of funding was no longer our biggest startup problem in the Triangle but rather a lack of affordable talent. Several big tech companies announced moves to the area pushing the overheated economy ever hotter and all things crypto got funded regardless of the fact that these companies in large make no product and create no value.
The second bang was heard all the way from the Ukraine as Putin attempted to take that country’s oil, pipelines and grain fields by force. Gas prices soared and supply chains were stressed to their breaking point. Inflation continued to rise to the point that if investors were not netting a minimum of over 10% IRR then they were actually losing money after taxes. Money needed to be deployed but valuations were still way overpriced even as the markets started to show signs of a downturn. Investors began to prefer ventures that could cashflow and had financial reserves over high-growth/high-burn opportunities.
The last bang heard in 2022 was the sound of things falling down. Nearly half of the newly minted unicorns (ventures with over $1B in valuation) were suddenly no longer unicorns. SaaS valuations returned to more typical levels of 6 to 7 times revenue. Crypto investors figured out that companies that create no value often have no value and lots of people who left their jobs for an overpaid position found themselves getting let go as companies started tightening their belts.
What’s coming next?
Looking to 2023 things seem to be setting down a bit. Inflation is slowing and investors are placing bets again as solid companies are once again attracting capital at reasonable valuations. While a recession is still likely in our future, most predict it to be a mild one, at least in the US.
The last two times I saw this much craziness an expression became common; “Cash is king.” This is certainly the case again as we ring in the new year. Those with some dry powder heading into 2023 are going to find an underserved early-stage venture market and fairly priced companies that are creating real value. That’s probably the only good thing about all of the “bangs” of 2022.