After an incredible uproar in valuations surrounding the enticing opportunities early-stage tech provided in 2021, 2022 presented an incredible downturn in both funding and valuation. Many founders have struggled to find product-market-fit with capital being more difficult to come by.

Unlike two years ago, I’ve seen many founders struggle to raise simply because of how investors have tightened their dry capital. Thus, I argue that the shift in future companies through a down market will need capital-efficient models and immediate profitability to stand out in the market. 

Despite the public markets getting obliterated in 2022, private markets are still taking a bit to catch up. This public-to-private market lag is normal and offers a lot of insight into how founders, operators and investors in this space can be thoughtful so that any downsides can be minimized.

What's funny is that not many people truly understand what these macro factors are and, more importantly, what they truly mean. The four we should pay attention to, outside of the stock market, are: (1) unemployment rate + total layoffs + new jobs added / jobs report; (2) rates (mortgage & LT and ST interest rates); (3) yield curves of rates and (4) consumer sentiment + the consumer price index.

In 2022, early stage valuations started to feel the impacts of the bear market but given initial rounds were priced when the market was at a peak, there were many extension rounds that were flat.

With startup valuations dipping and investment activity pausing amid a fraught market environment, 2022 marked the end of the venture capital party, and many founders and investors are about to nurse long, painful hangovers.

But time heals all wounds — even if it takes, well, a lot of time. In the aftermath of the dot-com bubble, it took nearly 15 years for Nasdaq to return to pre-2000 levels. No one can say for certain how long recovery will take in the years to come, but I think 2023 can still be a year of opportunity for smart investors and founders who adapt to new industry norms. I suspect deal structures will continue to shift, with flat and down rounds becoming more common, and with recaps and restructurings eventually expanding the opportunity set for investors willing to roll up their sleeves and get their hands dirty.

Even if the bullish venture market of the last few years has come crashing down, gems will still be found in the ashes. Some of the best, most iconic companies were formed in moments like this — for example, Airbnb and Uber were born in the Great Recession. So while the party may be over for some startups, it’s only just begun for the next best ones.

Early stage opportunities (especially at pre-seed) will remain pioneering, dynamic and investable. People across the country are still choosing to create businesses at a rapid rate — last month, 417K business applications were filed, down just 3% from the peak of 2022. The appetite for entrepreneurship has remained strong. Outstanding founders who are just beginning their journey will persevere despite larger macro headwinds. 

At the earliest stage, supporting extraordinary founders in the midst of a market downturn will create immense value for the early stage ecosystem. We've seen pre-seed and seed valuations stay resilient despite frothy valuations in later stage rounds. Median seed stage valuations remained relatively steady at $14 million in Q4 (just down $1 million from Q3), while growth stage valuations continued to fall significantly. Recent data seems to suggest that the early stage has been largely insulated from the broader market environment — and this will likely continue in certain industries like health tech, SaaS and fintech.

In 2023, we're going to see the real reckoning of new companies raising much lower valuations at all stages and down rounds being normalized. The signaling of a down round will be less severe as investors shift away from the optics and brevity of getting a deal done, and instead spend time understanding the viability of such businesses for the long run. 2023 is a great time for everyone: founders, operators and investors to sharpen their craft — taking the time to build or invest in companies that are servicing a real pain point, increasing value for all stakeholders.

No need to mince words here, it was a brutal year for the crypto industry at large. A contagion that quickly and shockingly killed off many of the supposed leaders of the space revealed so much of the malpractice that had ballooned to dangerous levels. Unfortunately, it was the relatively innocent retail investors that were positioned long (some with reckless leverage) who were ultimately the biggest losers from this wipeout. But hey, is there any arguing that this wasn’t absolutely necessary for the industry?

For all the carnage that crypto witnessed in 2022, there were moments of sheer brilliance and technical breakthroughs. Most notably, the Ethereum Merge transitioned the second-largest blockchain from proof-of-work to proof-of-stake in real time — akin to replacing a car’s engine while driving at 100 miles per hour. It laid the groundwork for a more scalable decentralized ‘world computer’ that promises increased performance. 

But the story of 2022 was overwhelmingly marked by high-profile scandals and unexpected meltdowns — FTX, Celsius, Terra/LUNA, 3AC were just some of the big names that went belly-up and exposed the over-leveraged house of cards that was being built using crypto. 2022 was a cleansing of untethered bull market exuberance.

While crypto licks its wounds in 2023, bitcoin’s value proposition further strengths amidst an increasingly turbulent macroeconomic picture (yes, I am separating them here for arguments sake). Uncertainty around the debt ceiling, payments for Saudi oil potentially being settled in Yuan, and hyperinflation + currency debasement risk are all examples of a slowly changing global monetary order.

2023 will see an increase in those who are looking for a seizure-resistant, immutable and truly decentralized store of value. While there is no doubt that the crypto space still has the top developers and talent currently building heads-down, it is bitcoin’s fundamentals that will enable it to hold serve through 2023, with potential for some upside with a reversal of QT and fresh liquidity.

In 2023, crypto finds itself in familiar bear market territory. Narratives will shift and people will wake up to the same realization that builders and investors of previous bear markets had: we have to build something of value to bring crypto to the masses. Improvements in base layer technologies are a necessary but insufficient condition to ensure crypto reaches its potential.

Step-function jumps in UX and security are critical. A more introspective environment will force the crypto-natives to reaffirm the original ideas for why any of this should exist: having a trustless, immutable, decentralized ledger is a superior coordination mechanism for the world’s problems. Whether it be DAOs or DeFi, crypto should enhance economic freedom and bolster data sovereignty. 

In DeFi, I’m particularly excited to break the incestuous chain of yield farming protocols that often derive yield out of thin air with magical internet tokens. The increased anchoring of DeFi ecosystems in real world assets (RWAs) is likely the most meaningful shift in bringing large amounts of capital on-chain with sustainable yield. 2023 will see an acceleration towards that goal.

2022 was the defining year in climate, but I’m hopeful that 2023 will break many, many more records. The Inflation Reduction Act takes center stage as the (regulatory) moment of the year in climate tech, ushering in a whopping $370 billion in promised federal funding to confront the climate crisis. The included billions of tax credits will drive private sector innovation and meaningfully shift incentive structures in favor of clean energy projects. I’m even more excited about the future of EVs, batteries, solar energy, and carbon removal (as well as the workforce that will facilitate this change) given the IRA’s support of the sector.

Additionally, the ongoing war in Ukraine and its corresponding energy crisis have given policymakers, investors and entrepreneurs yet another reason to rethink the centralization of energy and prefer a more decentralized and localized alternative. As the world, specifically Europe, begins its long and arduous journey to diversify energy supply, volatility in energy prices will continue to be a huge political and economic challenge that will need creative interim solutions. 

It’s hard to overstate the importance of the IRA. It’s the biggest climate bill in history, dedicating over $370 billion in funding across the whole spectrum of climate tech to catalyze the US’s efforts towards reaching their net-zero pledge, while also sending a strong signal of intention to become the leading nation in the future decarbonized economy. In a similar vein, the Russia-Ukraine war sparked an energy crisis across the EU that brought to the forefront the importance of national energy security and resilient supply chains. I believe this is a permanent shift that is accelerating the transition to renewable and clean energy generation.

The passage of the IRA casts a positive light on the future of EVs, batteries and solar energy (as well as upskilling opportunities for the workforce that will facilitate the transition to cleaner energy). Additionally, the war in Ukraine has made it clear that energy independence is imperative to the security of all nations, but the operations of such a transition remain even more painful and structurally challenging. I’m excited about companies working on solutions to accelerate distributed production of energy, optimize energy operations and manage the volatility in energy prices that will naturally come with the shift to energy independence.

If the US wants the fate of domestic net-zero goals to rest in its hands, it needs to take back control of critical mineral value chains. Control of metals is control of destiny. Unfortunately, 2023 will be highlighted by a continuation of unserious policymaking and lack of investment towards reshoring and refurbishing our mining, processing and manufacturing capacity. No country is immune to the laws of science, and until this issue is taken seriously the dreams of global electrification will feel seemingly so close, yet so far. 

There are huge amounts of capital available for climate tech startups  (~$37 billion in dry powder according to CTVC) to deploy in 2023, so I don’t see any major slowing down in funding to occur this year despite the gloomy macroeconomic conditions. Some verticals I see having a strong 2023 are the entire battery value chain, heat pumps and home electrification and the pressure on industrial decarbonization of heavy industry processes like steel, cement and chemicals as funding in the space isn’t nearly as much as the proportional GhG emissions that the sector represents.

The rise of social shopping in the United States emerged as platforms like TikTok and Instagram ramped up their social shopping initiatives in 2022. While social shopping platforms have far more traction in countries such as China, the expansion of social commerce giant Pinduoduo’s Temu into the US signaled that the race for US social shopping market share is escalating. 

2022 wasn’t all sunshine and rainbows for commerce, as we saw was the collapse of the instant commerce market, as companies such as Buyk, Fridge No More and Jokr shuttered operations in the US or altogether, Gorillas and Instacart slashed their valuations (Gorillas was acquired for $1.2 billion by Getir after previously being valued at $3 billion), and year-over-year venture investment in the space fell by ~50%.

2022 saw a number of changes in the retail sector. Live shopping is on the rise, propelled by Whatnot. And fast fashion like SHEIN has never been bigger. My top trend from 2022 was brand-enabled recommence. Brands like Lululemon, Steve Madden and, yes, even SHEIN are working to enable secondhand sales for their brand on their own website. Trove is the leading company helping brands do white label secondhand inventory, and emerging companies like Treet and Recurate are helping brands launch white label marketplaces (where shoppers of the brand sell items peer-to-peer).

2022 saw a clear overcorrection within the retail industry as consumers flocked back to stores and e-commerce activity retreated to pre-pandemic levels. Interestingly, the sustainability imperative saw a massive boom with shoppers spending over $100 billion on sustainable products. As retailers are still dealing with mountains of excess and return inventory amidst a challenged macroeconomic environment, 2023 will see a renewed focus on business fundamentals for the retail industry. At the same time, the retail industry will be left to determine how and if it accounts for the sustainability imperative in its efforts to protect and expand margins.

2023 looks to be another big year for creator commerce. From startups like Pietra and Vitrine enabling creators to build and scale businesses to incumbent social platforms investing more in their shoppable media, creators are set to share more of the value in the content they create. For D2C brands and retailers, 2023 has the potential to be more about customer 360. By leveraging all touch points of their customers, both in store and online, brands and retailers are able to curate more personalized ads and shopping experiences. 

For shoppers in 2023, a recessionary environment will begin to put pressure on the value-aligned shopper who in recent times has become increasingly selective with the brands they actively support. Although everything  points to value aligned shopping persisting in the long term, 2023 may be the first real test to see how shoppers allocate their dollars.

My top prediction for 2023 is the rise of AI in shopping. Soon, virtual try-ons and AR mock-ups of furniture in your apartment will be the norm. Fashion brands will mix and match outfits using generative AI, furniture stores will automatically rearrange your apartment including new pieces to purchase from their website. Recommendations will get much better, to the point where sales reps at stores are less valuable than ever. I’d look out for Amazon in particular to capitalize here.

Excess and returned inventory rates in apparel have quadrupled, with >$1 trillion sitting on retail balance sheets – 92 million tons of this inventory ended up in landfills, accounting for 10% of global carbon emissions. As macroeconomic conditions and geopolitical dynamics continue to squeeze retail supply chains, we expect excess and returned inventory rates to rise, placing pressure on brands. We believe finding ways to tie the sustainability imperative to margin protection and expansion for brands through managing excess inventory (as Equal portfolio company Ghost does) represents a massive opportunity at the intersection of climate and retail.

Manufacturing was one sector in 2022 that greatly benefited from renewed interest in critical domestic industries. Persistent supply chain complications lingering from COVID-19, pervasive labor shortages and strained geopolitical relations have pushed investors to — once again — take American industry seriously. Andreesen Horowitz was one firm that set sail under accelerating tailwinds, debuting their inaugural American Dynamism Fund. 

When we show up we are often the first cloud-connected device on the factory floor. There has previously been an aversion to connected devices due to lack of value vs risk. We have a solution that provides significant value using a cloud connection but many organizations don't have a defined path for how to get connected devices onto the factory floor.

A significant percentage of our company comes from the security industry so we are comfortable having these conversations, but many of our customers aren't and don't know what to be concerned about. This can vary wildly from customer to customer, and even within large customers. This can significantly delay adoption. We address this by having a solution that provides significant value and isn't just a nice to have, as well as using established security best practices and backing them up with certifications. 

2023 will continue to be a David and Goliath story for startups fighting for government contracts in the defense space. 2022 was the year many investors changed their tune as it related to funding defense tech, but with an estimated ~4% of government contracts going to startups, there remains a massive opportunity for the funding and building of manufacturing startups that service the US and National Security market.  

2023 is also poised to be a breakout year for widespread predictive maintenance adoption in the manufacturing industry. With sensor costs decreasing and companies continuing to experience costly equipment failures, predictive maintenance has the potential to be the gateway drug.

I think that this is the year IoT devices become real solutions. Up to now, I think IoT devices in manufacturing have been mostly little doodads (technical term) that get added to the factory as an afterthought. Almost like an experiment. This year, I think we see less IoT devices and more IoT solutions. Solutions that are purpose-built into the factory line and are expected to deliver real value to the end user.