Many Startups Will Run Out of Cash Starting End of 2023

In Startup Decoupling & Reckoning by Elad Gil, the author lays out the situation many mid-to-late stage startups will be in starting at the end of 2023. Companies raise capital for 2-4 years of runway. Valuations have risen sharply compared to public markets. Raising money will be more difficult as startups that don’t have product-market fit will not hit key milestones relative to their valuation.

This reset will result in many startups either running out of cash or seeking an acquisition. With a large number of startups looking to sell, acquirers will get flooded with deal flow from late 2023 to 2024.

Update 2024-12-07: There are signs this is coming true.

See also:

  • Saas Benchmarks for Series B

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  • Startup Multiples Fell from 100 to 39 Times ARR in 2023

    According to a recent presentation by Redpoint, ARR multiples for Series B and C companies dropped sharply from the all-time-high in 2022 (100x) to a more sober 39x, representing a 4x premium compared to public markets.

  • Time Between Series a and Series B Is 31 Months on Average

    In 2023, the average time between raising a Series A and Series B round increased to 31 months according to Crunchbase. With startup funding falling 67% in 2022, more startups could face a difficult time getting funding. Some predict startups will run out of cash in 2023 with the most fiscally conservative ones run out in 2025 unless conditions change.

  • Startup Growth Calculator

    There is a long list of reasons a startup might fail, but running out of money is high among them. A common piece of advice for early startups is to make rapid progress towards “default alive” as in, running the business on revenue rather than relying on outside investment.

  • Protect Against the Downside by Enjoying the Upside

    Bill Gurley, GP of Benchmark Capital said, “The best ways to protect against the downside is to enjoy every minute of the upside.” Markets have cycles and it’s difficult to time the market. One way to protect against downside risk is to take full advantage of the upside. That way, your returns cushion the inevitable downturn.