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A startup “mass extinction” is likely coming

If you own a startup, it may be time to move cautiously financially as experts predict another major slump coming to the startup space.

A top-down view of a group of startup workers working at a round table and typing on laptops.

Startups nationwide are facing a potential economic crisis of dinosaur proportions, though the meteor in this case is nothing more than slowed funding from VCs and ensuing bankruptcy in a sea of young companies looking to leave their mark. 

Tom Loverro, a partner at IVP–one of the venture capital companies known for backing giants such as Slack and Twitter–predicted this “mass extinction” back in January of this year.

“There’s a mass extinction event coming for early & mid-stage companies,” Loverro wrote on Twitter. “Late ’23 & ’24 will make the ’08 financial crisis look quaint for startups.”

At the heart of Loverro’s forecasting is Plastiq–a startup that previously raised over $140 million from VCs and has now filed for Chapter 11 bankruptcy–but Plastiq is just one of a handful of high-profile startups that went bust after promising huge returns (hello, WeWork). 

Much of the problem stems from overly generous VC funding to large numbers of startups–almost indiscriminately, hence the tie-in to the 2008 banking crisis–back in 2021. Now that VCs are slowing their roll and investing more cautiously, startups that have failed to produce or grow in the time they’ve had are inching closer toward the chopping block.

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“4 in 5 very early-stage companies have fewer than 12 months of runway…All of this points to a FLOOD of startups coming to market to raise capital beginning in H2 2023 and continuing through 2024. More will seek capital than will get funded,” writes Loverro.

That said, Loverro also offers some tips for surviving the startup mass extinction, none of which involve hiding in a bunker. Chief among these tips is prioritizing cash management over pretty much everything else.

Focus on survival, not valuation. Don’t let your ego or anchoring bias kill you. Public company stock prices go up and down every microsecond. Your stock price fluctuating isn’t fatal. Running out of money is,” he explains. 

As mentioned above, he also believes that the second half of 2023 will mark the beginning of a massive push for funding from VCs. Rather than waiting for a date which was previously established, startups should raise funds as much as possible now (or close to it) so that the scarcity Loverro predicts for 2024 doesn’t impact them.

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Jack Lloyd has a BA in Creative Writing from Forest Grove's Pacific University; he spends his writing days using his degree to pursue semicolons, freelance writing and editing, oxford commas, and enough coffee to kill a bear. His infatuation with rain is matched only by his dry sense of humor.

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