2024: A Healthy Reset

The start of a new year is a fruitful time to pause, take stock, and look forward to the coming months. Last week, while sitting on the beach in Hoi An in Vietnam, I had an opportunity to do just that. In what follows, I’ll share some of my reflections on 2023, along with my high-level outlook for 2024.

Reflecting on 2023

2023 began on a somber note. The NASDAQ was down more than 30% YoY. The Cloud Index, which tracks software stocks, saw an even steeper decline, falling over 50% in the same period. Inflation remained above 6%, and interest rates were climbing ever higher. Venture funding continued to slow across all stages and sectors.

To make matters worse, many startups had big misses in Q4 of 2022, and we saw a fresh round of layoffs in Q1. Most CEOs rightly responded by setting lower growth expectations for 2023. Still, the first half of the year was tough on founders, as they grappled with a demand slowdown, increased customer churn, and intense scrutiny from boards over unit economics.

I, too, felt the pressure. The once reliable up-rounds raised by my portfolio companies were no longer guaranteed. I found myself awake at night, worrying about which of my companies would need bridge rounds, and whether I had the cash reserves to support them.

The collapse of Silicon Valley Bank in early March upped the uncertainty. Watching one of the largest banks in the U.S. implode in a matter of hours was surreal. My portfolio companies rushed to safeguard their assets, taking previously unheard of measures like wiring money overseas and getting a $5 million cashier’s check, which was deposited in a personal account. In the end, only half managed to get their money out. For the rest, it was a gut-wrenching three days until the Fed intervened on Sunday afternoon.?

Fortunately, by Q3, things started to look up. A “soft landing” seemed increasingly likely, and most public software companies began to project stronger outlooks for 2024. I observed these trends on a smaller scale across my portfolio, as companies built more robust pipelines and gained confidence in their forecasts. As most enterprise startups have their financial year ending in January, the next three weeks will set the economic tone for the year to come.

Another major theme of 2023 was generative AI . The pace of innovation was both exhilarating and exhausting, with new models and frameworks emerging weekly. As an AI optimist for over a decade, and an investor in LLMs since 2018, it was validating to watch crypto founders pivot to AI and every flavor of investor lean in.

Still, having lived through the enterprise adoption cycles of cloud, internet, and mobile, I was both amused and troubled by the readiness of some of my peers to pay exorbitant prices, especially for AI-driven (or simply AI-branded) startups. It felt like the venture industry had learned nothing from previous cycles, especially the turbulence of the past three years.

As a result of these dynamics, despite meeting more than twice as many companies as usual, I only made one new investment in 2023, compared to my typical two or three. This slower pace, while frustrating in some respects, allowed me to focus on my portfolio and refine my thesis. Coming into 2024, I have a stronger sense of strategic clarity and the dry powder needed to back it up.

Our enterprise team at Foundation also enters the year with fresh energy and talent. Early in 2023, we welcomed Vinay Iyengar , Jaya Gupta , and Andrew Han as investors. In the fall, Priyal Vij came on board as our director of enterprise strategy and biz ops. This follows the addition of Lauri J. Moore , who joined us in 2022. We now have critical mass to fully cover the enterprise landscape and take advantage of the AI opportunity ahead of us.?

Personally, 2023 was the most demanding of my 15 years in venture, and this definitely took a toll. There were, however, many bright spots! I spent three weeks working remotely from Bangalore with my family: a special and long-overdue visit. We celebrated the year’s close with both our annual Diwali party (which we co-host with Rajeev Madhavan ) and our holiday party. We also spent the week between Christmas and New Year’s in Vietnam and Cambodia, which was an incredible learning experience. I found myself making connections between Angkor Wat and Silicon Valley!

What’s ahead in 2024

After the reset of 2023, I believe that 2024 will usher in a new, decade-long innovation cycle. The start will be choppy, and I suspect 2024 will have its share of scary moments. There’s still a lot of “clean up” that needs to happen. Some of the excesses of 2023 will get worked through, as startups are forced to raise based on results rather than hype. The late-stage funding environment will remain challenging, as not all companies will grow into the lofty valuations at which they raised in 2021. Yet, on the whole, I’m optimistic that most enterprise startups will fix their cap tables and see renewed growth as enterprise customers once again lean in.

On the AI front, I continue to believe that open-source models and their associated infrastructure will gain market share. As this plays out, existing categories like model observability and monitoring will become even more important, while nascent categories like tooling for serving and inference will take off.?

I’m also very bullish about AI-first applications. I predict that several incredible products will gain traction this year as startups figure out how to package their UX, workflows, and value propositions on top of core AI models and infra. Many of the best companies in this category are yet to be started. Specifically, I envision that at least 10 decacorns and over 100 unicorns will be created in this category in the coming decade. I look forward to investing in a number of them.

Crypto, too, stands at a crossroads in 2024. For the past several years, many talented entrepreneurs have been quietly building in this space across infrastructure and applications. I’m personally very grateful to my partners, Steve and Rodolfo, for their seed investment in Solana, and I remain optimistic about this technology’s potential.?

Consumer investing will continue to face headwinds due to the power of established platforms and the absence of clear disruptive innovations. Big tech companies, especially Google, Microsoft, Meta, and Apple, are well positioned to dominate consumer AI. The dark horse, perhaps, is crypto, as it holds the potential to disrupt traditional customer acquisition channels.

The venture ecosystem itself will see considerable change. Unfortunately, many emerging managers will struggle to raise new funds and will likely close shop. Larger platform players will rationalize both their fund and team sizes. Many venture tourists, including late-stage firms and family offices exploring seed-stage investing, will retreat after having received an expensive education. Looking back, I suspect it will seem that both everything and nothing in venture has changed.

Overall, despite the ups and downs that 2024 will inevitably bring, I’m extremely optimistic about the year ahead. I feel privileged that my portfolio continues to perform well, despite the volatility. And I’m excited to make two to three new investments, most likely at the incubation or seed stage.

As always, I’m passionate about supporting exceptional, technical founders who are pursuing large markets and solving hard, technical problems. If you’re thinking about starting a company, please do reach out!