Weekly Update: End of Year Predictions & Happy Holidays!
Highlights from SaaS & VC & Markets from the week of 12/19
The WCLD cloud index fell 5% on the week to $24.34. It wasn’t alone in seeking lower ground - the S&P and Nasdaq both declined on the week as well, representing a third consecutive down week for the major indices..
As this year comes to a close, there’s been a flurry of end-of-year tech predictions for the coming year. VC Nikhil Basu Travedi of Footwork has compiled a thoughtful post with predictions from a variety of investors & founders:
This type of survey provides a good overview of consensus opinion in the world of tech startups. Looking at 2023, the consensus is most concerned with macroeconomic trends, startups & VC’s “resetting,” and AI.
Of course, the biggest returns in VC are generated by making non-consensus bets that happen to be correct. This is very hard! Non-consensus bets usually fail and often look foolish in the process. Consensus bets in VC also usually fail, but the failure is comforted by being part of a crowd.
I think the best non-consensus predictions come from early stage founders. These predictions are from yours truly, so please keep your expectations modest.
Prediction #1: 2023 will be a fantastic vintage for software VC
I don’t think my opinion is that contrarian, although if more VCs agreed with me then the funding market wouldn’t be so tight.
Prediction #2: 2023 will end with a “the party is back!” vibe
The last time the startup & VC ecosystem was this bleak was March of 2020. It took about 3 months for that to reverse. Prior to that, there was serious gloom in late 2018 and early 2016. Both of those times, there panic metamorphisized into excitement over the course of a few months.
It’s interesting - pessimism about markets tends to sound mature & responsible. Well, I guess I’ll take the risk of sounding irresponsible. I think the VC market will snap back faster than we expect, Q1 will be slow and Q2 likely as well, but I think by next September we’ll be back to a healthy level of activity.
Prediction #3: If it happens, a recession will be minor.
From Mark Zandi of Moody’s:
Debt service burdens have never been lower, households have a boatload of cash, corporates have good balance sheets, profit margins rolled over, but they’re close to record highs…The banking system has never been as well capitalized or as liquid. Every state has a rainy day fund. The housing market is underbuilt. It is usually overbuilt going into a recession...The foundations of the economy look strong.
I agree. By end of 2023, startups & VCs should have plenty of reason to be focusing on micro, not macro.
Prediction #4: OpenAI’s share price rises in 2023, then plateaus for many years
OpenAI has been behind many of the most recent technical achievements in AI. It’s already raised at nearly a $20b valuation and rumors are that it soon will raise at an even higher valuation. Yet the record for Decacorn software companies that raise at astronomical valuations is not particularly good - for example, today Dropbox and Palantir both have share prices below their valuations from 2014 and 2015, respectively. I expect OpenAI to follow a similar path - it will be an amazing innovator but a mediocre investment in 2023.
Prediction #5: Open source will continue to hoover up software market share
I’ll admit this is not a terribly controversial view given the inroads open source businesses have been making. However, I think we’re still very early in this trend. It might not seem inevitable that open source software will steadily take b2b market share over the next 10 years, but I think it’ll happen. Developers prefer open source, and developers are multiplying in number & in influence.
Podcast Recommendation of the Week:
David Senra’s Founders Podcast reviews the Amazon.com’s annual shareholder letters penned by Jeff Bezos. This gives a deep view into a brilliant leader who embodies two much-easier-said-than-done founder yet critical traits: long-term thinking and determination.
The letters include a stunning anecdote of how a meeting with Costco’s co-founder and then-CEO Jim Senegal triggered Bezos to totally revamp his pricing strategy. The meeting inspired the creation of the Prime subscription model and pushed Bezos to lower prices across-the-board. It’s also a great example of Bezos low-ego approach - he was not afraid to imitate his peers when he thought they had better ideas than his own.
Reading Recommendation of the Week:
The Information has a great article on the relationship between Jasper AI and OpenAI. Jasper is one of the first AI-as-a-Service breakout successes, quickly achieving unicorn status and rapidly approaching 100m in ARR.
The bear case on Jasper is that it’s merely a re-seller of OpenAI’s API. The extra-bear case is that OpenAI’s recent launch of ChatGPT makes Jasper obsolete. The bull case for Jasper is that the LLM tech that OpenAI has pioneered is rapidly becoming commoditized, so Jasper’s reliance on its partner will be fleeting.
This is a space that’s worth watching & the article offers a great insider perspective.
(I think you’ll bypass the Information’s paywall and go to the full article here)