3 predictions for 2024
On startups, VC and gaming.
Three predictions for 2024 come to mind.
First, the great VC shake will happen. More firms will downscale and shutter while spin-off funds emerge from those leaving or getting ejected from larger establishments.
We can see this with the Games Fund and Speedrun, almost distinct entities that spun off from Andreessen Horowitz, although they are not spin-offs. They were designed to move quickly, write smaller checks, and back winners indefinitely with a stage-agnostic approach.
The late 2010s and early 2020s saw many enter the VC game, following others rather than honing their investment instincts. That era is ending. Those sharpening their skills will prevail. The zero-interest-rate phenomenon and the rise of mobile and online adoption in the 2010s enabled hundreds of VC funds to raise significant capital. As limited partners who invested in VC during the past decade evolved, they grasped what drives good returns.
Many newbie LPs entered during the pandemic, investing in VC funds. Most will exit if they don't apply lessons learned from backing the right managers versus the wrong ones. The issue? Many LPs, especially founders with exits, only have exposure to one or two friends running VC firms – not enough data points to discern good from bad managers. Bright LPs will converse with their peers and inquire about what makes a good VC fund investment. In 2023, we saw numerous LinkedIn posts on backing VC. I encourage you to follow James Heath on LinkedIn, whose posts I greatly appreciated in 2023.
Where will this all lead? I believe that better venture capital will emerge.
Secondly, the ongoing struggle for startups that raised funds during the pandemic will culminate in many going under. Bridge rounds happened in 2023; now it's time for VCs to place bets on new ventures. This year may see more new deals in VC investing and startup history than ever.
The pressing question for startups raising seed rounds: Who will fund your Series A? No intelligent VC will dismiss this query in 2024.
Lastly, a new approach to making startup investments is on the horizon as we move into this transformative year.
The year 2024 will witness a surge in startup funding. I believe an all-time high in new startups receiving venture capital (VC) will occur. Smaller checks will become the norm as the era of relying on cheap VC money fades away. Pre-seed and seed deals will dominate, and we'll need to transition to a mindset of profitability, which enables a Series A round to become more probable than not.
Exactly how that will look remains uncertain, but startup founders and VCs must collaborate closely to determine the prerequisites for subsequent funding rounds and the growth required to achieve them. However, one pressing question remains for the gaming industry: are there enough VC-backable opportunities?
The hyper-growth phase fueled by mobile adoption and free-to-play games has ended – the industry is no longer expanding. The pandemic provided a final boost with soaring numbers and significant growth, but now virtually everyone owns a smartphone and is connected. Spending won't increase from its current levels, allowing industry incumbents to maintain control.
This reality is why F4 Fund, where I serve as a general partner, looks at investing in gaming differently. Read more about how we are investing by reading my partner David Kaye's substack.
(Photo by BoliviaInteligente on Unsplash)