In 2024, It's 1999 and 2001 at the Same Time

There’s a feeling of cognitive dissonance pervading the world of startups and VC.

On the one hand, it’s 1999 for the AI-enabled future. The excitement surrounding AI is palpable, promising to revolutionize industries, reshape economies, and fundamentally alter the fabric of society in the coming decades. The incredibly rapid advancements in AI technologies, coupled with the proliferation of data and computing power, have created unprecedented opportunities for innovation akin to the promise of an internet enabled “New Economy” back in the late 1990s.

I’m a believer, for what it’s worth. Whether you’re a techno-optimist or an AI doomsayer, a future where artificial intelligence reshapes our world as much or more than the internet, electricity, and the industrial revolution feels nearly inevitable. So in this regard, it’s no surprise that high profile LLM companies are raising billions of dollars in VC funding and NVIDIA has flirted with being a $2.5 trillion market cap company.

At the same time, we’re two years into a multi-year downturn for the startup/VC ecosystem. Startups have seen a 50% drop in VC investment since the 2021 peak, something we haven’t seen since 2001 when the “dot com bubble” burst (US VC investment dropped ~80% in a 2yr period then). And while this may look like a return to a pre-pandemic / ZIRP / Everything Bubble trend, it’s masked by monster multibillion rounds in 2023 for OpenAI and Anthropic. So outside of a narrow set of early AI leaders, the drop in funding for all other startups is actually more precipitous than the data suggests. Over the last 12-24 months, many startups have faced meaningful layoffs, challenging funding environments, or have hit the wall and wound down.

Similarly VC distributions of investment proceeds back to LPs hit 14 year low last year (Pitchbook), last seen during the depths of the Great Recession. The IPO market has been closed and M&A has seen a lot of friction from higher interest rates and antitrust regulators. The cycle of innovation capital that flows from institutional LPs to VCs to startups and then back again is a bit gummed up.

I started my career during the internet / web 1.0 innovation wave. I accepted my first job coming out of college in late 1999 from Elon Musk to join his startup called X.com, but barely two years into my career we were in the depths of the tech crash and recession of 2001-2002. So now as a VC in 2024, it feels like both 1999 and 2001 are happening at the same time.

For tech entrepreneurs, navigating this paradoxical landscape requires a delicate balance of optimism and pragmatism. While the long-term potential of AI remains undeniable, startups must also contend with the immediate challenges of securing funding, building sustainable business models, and demonstrating tangible value to investors. Building a startup is a daunting task in the best of times, and right now it’s compounded by the uncertainties of a rapidly evolving market.

Despite the challenges, there's reason for optimism. The resilience and ingenuity of the tech community have proven time and again to be catalysts for progress and innovation. As we navigate this uncertain terrain, we can both keep the long view in mind while dealing with the immediate challenges in front of us. History might rhyme but it never repeats, as they say.