5 Reasons Why Startups Will Have a Hard Time in 2024
There has been talk in the news for a long time that the IT bubble is deflating.
Startups are closing down en mass, hundreds of people are being fired, and no new ones are being hired.
And even a “startup” appeared, which counts all this
I tried to collect all the key changes for myself and find out why this is happening and how much market is overheated in reality and when it will be like it used to be.
In short: never
With some details: it will not return, but it will be different.
The key reasons are, in my purely subjective opinion, the following:
- The Fed's high rate
After helicopter money was distributed during Covid-19, inflation has increased significantly and now the FED (Federal Reserve System) is doing everything to lower it.
And the most popular and affordable tool is raising the key rate.
But at high rates it becomes more profitable to simply deposit money and quietly receive your benefits without dealing with risky assets.
After all, many funds and personal investments proceeded from the fact that money just needed to be invested somewhere, and after buying shares and real estate, there was also a venture capital market. A lot of risks but the jackpot is too big to ignore.
2. Changes in U.S. Tax Laws
The depreciation rules have changed and now the economy of ordinary startups has become worse. Now the salary of developers in particular (software engineer) is considered in a new way, which significantly spoils the overall economy of the process. Therefore, more money will be needed for the same thing.
Comparison for a typical startup:
3. The growth of the Internet users slowing down
By about 2015–2016, everyone who could use the Internet started doing so.
Therefore, the number of users has reached its limit and applications now have to lure their users away from each other.
And the price for attracting a new user is constantly growing, which also affects the budget of any project.
There is still growth, but mainly due to Africa and Asia. And whether these people really have some money to spend is a big question.
4. Saturation of the B2C segment
Today, the indicators of how much time people spend on their phones have reached a physical maximum (while literally everyone has an application with the Stories). And the head of Netflix has stated several times that their main competitor is sleep.
So, it will be very difficult for new B2C startups to gain a customer base due to the high competition and cost of advertising.
5. Fragmentation of the customer base ( !!! POLITICS !!!)
Until 2022, the Internet was divided basically into the Chinese segment and the rest of the world, mostly due to language features.
But after the restrictions of Visa and Mastercard were introduced, users from Russia cannot pay for Western services and goods anymore. And now the Internet is becoming more and more like a patchwork quilt: American, Russian, Chinese.
If earlier a startup could always immediately work for the global market, now the IT business is very similar to the usual one. There is a kind of “customs”, some regulators and so on, and of course each country has its own peculiarities. Not all projects are ready for the new requirements.
What is going to happen next?
The key is the rate of inflation and the rates of the Fed and other central banks. As soon as the key rate is lowered, the market will immediately increase interest in risk and some projects will go up.
But until then, I think, the following will happen:
B2B dominance
B2B solutions will be of higher priority as more significant (and preferably for the real sector, rather than another gadget for other startups, see the Figma deal*).
Inspections and audits
Funds are engaged in a massive reassessment of everything and I think they understand perfectly well that now is the time to buy something really good for a cheap price, something that was missing in “their own” portfolio.
Revenue and profit
No more romance. If you’re doing a startup, everyone will treat it like a regular business. Technology, growth rate, LTV and other metrics are of course important. But the primary thing is the basic business indicators, and these are revenue and profit.
Localization
Import substitution is promoted everywhere as one of the elements of the state development and preservation of security. Such startups will surely grow under the umbrella of large corporations.
links:
cancellation of the deal between Adobe & Figma
There are many figures about the venture capital market :
https://disk.yandex.ru/d/zaDkNyynmxi9Uw (200 slides based on the results of 2023)
