December 9, 2023

first half 2023 is tough for startups, but venture capital investors aren’t immune either. Some VCs have had a tough time with their portfolio companies finding it difficult to raise capital, while others have adjusted their investment cadence to the current investment environment. But if they had a crystal ball, what would they do differently? To find out, we asked 15 investors what they think is the most unexpected trend so far this year.

Not surprisingly, the biggest surprises all seem to be related to artificial intelligence in some way. Several investors said that while they were caught off guard by the pace of development of generative AI, what was really surprising was the seemingly overnight shift in venture capital funds from conservative stances to diving headfirst into the ownership structure of AI-related companies. .

“The number one surprise is the speed of funding and valuations in the generative AI space. Perhaps that’s not surprising. But it’s really a ‘hass and have-nots’ story in funding right now,” said Matt Murphy, Partner at Menlo Ventures ( Matt Murphy) said.

We’re looking for founders to take part in the TechCrunch+ survey on the usefulness of various founder-focused events.

If you are a founder and would like to share your experience at such an event, please fill out this form.

Jenny He, Founder and General Partner at Position Ventures, has a similar opinion: “I’m amazed at how quickly the AI ​​boom is happening in 2023, and how many top companies have gone from a wait-and-see attitude at the end of 2022 to a very “very big” business in 2023.” active. Driven by the AI ​​boom, some of our portfolio companies are moving from quiet internal funding rounds to very competitive rounds in early 2023, with rapidly rising prices. “

Not all AI-related surprises are positive, though. John Tough, managing partner at Energize Ventures, is baffled by the ease with which some companies tap climate funds to invest in artificial intelligence. “We know that interest in climate among ordinary investors is fleeting, but it’s surprising how many household names plan to launch climate focus areas and then move on to LL.M. and artificial intelligence,” he said.

For Rajeev Dham, partner at Sapphire Ventures, the rapid rise in AI investment also brings some concerns. “There is no doubt that advances in artificial intelligence will spawn incredible companies, disrupt industries, and be transformative technologies that drive massive productivity gains for incumbents, but my concern is that we are still in the first inning, This will result in substantial capital losses,” he said.

It’s not just about artificial intelligence, though. M13 investor Mark Grace was surprised by the range of early-stage valuations: “The valuation range is all over the place, especially at the Series A stage. We all know how quiet the later stages are, and the seed market seems surprisingly resilient. Yet , it will be interesting to see the big difference in Series A pricing.”

As far as investors wish they had done differently, some think they should have moved faster and more aggressively. “In a macro environment like this, you always regret not being more aggressive when everyone else is scared,” said Logan Allin, managing partner and founder of Fin Capital. Cycles occur with very high frequency, which is a boon for net new investment in portfolios.”

SaaSstr CEO and founder Jason Lemkin wishes he’d spent time meeting more founders. “I, like many, slowed down in 2022 when it should have sped up. P/E ratios in SaaS are still relatively low, but great companies keep popping up as always.”

But by far our favorite answer to this question comes from Howie Diamond, managing director and general partner at Pure Ventures: “No individual has ever invested in First Republic stock!”

Read on to learn more about what investors think will be the biggest surprise and what lessons they’ll learn from the first half of 2023.

We interviewed:

Matt Murphy, Partner, Menlo Ventures

We’re curious if you’ve had any surprises in the venture capital space so far in 2023.

The first big surprise is the speed of funding and valuations in the generative AI space. Perhaps this is not surprising. But fundraising right now is really a “haves” and “have-nots” story.

The second big surprise is the scarcity of late-stage financing companies. That’s not surprising, but behind the scenes, companies are still sorting out their houses, and it’s really hard to sell right now, so companies are trying to work things out until they find more predictability.

The third is the number of mergers and acquisitions and companies trying to acquire them. We will only see this accelerate.

In hindsight, what do you wish you had done differently in the first six months of 2023?

We mobilized our entire company around GenAI, and it paid off. We have a strong portfolio and will continue to invest. We’ve even had some investors participate in hackathons and code in their free time. I just hope we start building this pipeline more purposefully in 2022. A lot of these businesses are started by founders who leave behind a pool of AI talent, so you really need to focus on the founders before they fully shine in the eyes.We’ve done a good job on this so far, and we’re really going the extra mile Menlo Future Founders Program This year.

Sheila Gulati, Managing Director, Torah Capital

We’re curious if you’ve had any surprises in the venture capital space so far in 2023.

Startup investment in 2023 will be impacted by macroeconomic headwinds on the one hand and the acceleration of artificial intelligence on the other. This dichotomy has created a startup investment environment made up of haves and have-nots, which is very interesting and in some ways surprising.

I’m surprised that AI conversations don’t focus more on AI’s potential. OK. There are still some thorny problems that society has yet to solve, and artificial intelligence can provide breakthroughs in these problems. Technology has a history of enabling such breakthroughs, so it has always boded for optimism.

AI is no exception, and I see education as a prime example of how AI can provide individualized guidance to each child, catering to their learning styles, pace needs, and adaptive patterns. This promotes educational practice for all learners and provides all with the inalienable right to education that a good society provides.

I am obsessed with thinking about these types of scenarios and working on them because AI will bring many breakthroughs to the world.

In hindsight, what do you wish you had done differently in the first six months of 2023?

While we have invested time in this area, we wish we could have spent more time talking to academics and researchers at top AI-focused institutions. We believe that a good subset of the decacorns of the AI ​​generation will arise from deep technical research, much of which is conducted in academic research labs today.

Moto Tsuchikawa, CEO, Sony Ventures

We’re curious if you’ve had any surprises in the venture capital space so far in 2023.