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The Crystal Ball: VCs, private equity investors, and tech founders predict what’s to come in 2023

January 4, 2023, 12:21 PM UTC
Illustration by Nick Little

Welcome to 2023, and a very special edition of Term Sheet, where we ask readers—a slew of VCs, founders, private equity investors, and bankers—to look into their crystal ball and tell us what to expect in the year ahead.

For this year’s issue, we dug through more than 100 predictions, ranging from quick takes on whether venture capitalists would run for office to thoughtful analysis on whether philosophy majors will be at the top of the hire list in an artificial intelligence-powered world. And of course, speculation as to how many unicorns may lose their status, and intel as to which sectors are most poised for M&A deals. There were so many predictions this year that we decided to break out a few sections (crypto, hiring, M&A, and the metaverse) on their own, though you can still find a sampling of our favorites below.

Illustration by Nick Little

We asked, and you delivered. Here is what 2023 may have in store, in your words:

Note: Some answers have been shortened for clarity and/or brevity

Valuations and survival: The winnowing of the unicorn herd

“At least a dozen unicorns and public companies will go bankrupt, throwing additional cold water on the venture market.” —Rick Zullo and Richard Kerby, co-founders and general partners, Equal Ventures 

“Expect to see more insider-led funding rounds, particularly given the economic climate.” —Dr. Galym Imanbayev, partner, Lightspeed Venture Partners

“We expect a slow H1 2023 as investors continue to shy away from overvalued late-stage companies” —Gené Teare, senior data editor, Crunchbase News 

“Venture capital simply cannot stay frozen for long, and we’ll see renewed investments by the end of 2023. The record amount of dry powder at VC funds must be deployed according to schedules and in search of returns for investors. The VC community is driven by rumors and groupthink. All it will take to unlock a furious wave of pent-up demand is one person investing and sparking everyone else’s fear of missing out.” —Peter Pezaris, SVP of strategy and experience, New Relic

“Valuation correction in 2023 won’t be as extreme as some expect due to cash preservation strategies from the very well capitalized cohort of companies that raised big rounds in 2021.” —Dave Zilberman, general partner, Norwest Venture Partners 

“There were over 1,000 unicorns globally at the beginning of 2022. In 2023, three-fourths of those companies won’t be unicorns—the good and bad businesses alike. The strongest companies have and will be forced to take down rounds, creating healthy opportunities at the growth stage.” —Mo Osborne, founding investor, Capital V

“2023 will reveal the world’s first Climate-tech startup ‘dragon’ (a private startup valued at $12B+).” —Brian Walsh, WIND Ventures

Social networks: The Elon Musk dilemma

“Following Twitter acquisition chaos—multiple centralized and decentralized sites including Mastodon have popped up as Twitter replacements with multiple brands and advertisers cutting ties with the platform at the end of 2022. However, it is my prediction that by the end of 2023, users will return to Twitter—but how much Twitter will change in a year will be a surprise to us all.” —Michael Jones, CEO and managing director, Science Inc.

“Twitter struggles to make interest payments on their recently acquired debt of ~$14 billion and is forced to sell more equity to cover the cost.  Elon makes a play to acquire that debt at the actual value of Twitter (estimated to be closer to $10Bn than $44Bn) and is able to recoup some of the premium he paid for Twitter via a quasi-reorganization. He converts that debt to equity, further increasing his exposure to the investment. He changes the revenue model to be a mix of blue check $8 subscription for premium content or some special form of access and begins to add direct communication features for users which starts to re-attract lost ad customers. He incorporates a payment system that does not require a bank account to transfer funds, only a Twitter handle and cell phone number. Twitter cracks the code on ‘banking the unbankable’ and returns to its previous glory.” —Matt Barbieri, partner, Wiss & Company

“Traditional social networks based on individuals (like Facebook) have been declining. Instead, the most dominant form of social media today is algorithmic 3rd party content—the Tik Tok Model. This model has changed social media from network-based connections to consumed entertainment. In 2023, I will be closely watching for a return to community-driven social media. These new social networks will encourage participation and a sense of belonging.” —Youri Lee, investor, IVP 

A.I.: Plato makes a comeback

“Voice will be more pervasive in SaaS across industries, driven by OpenAI’s GPT-3 influence on conversational A.I. and chatbots—as NPL touches business functions across the enterprise.” —Nina Achadjian, partner, Index Ventures

“Thanks to the rise of large language models, natural language will begin to replace GUIs as the primary human-machine interface. Using just voice or text as the input, consumers will generate code, control software apps, and create rich multimedia content.” —Talia Goldberg, partner, Bessemer Venture Partners 

“I think a lot of boring philosophy is going to become important next year—like what is the meaning of truth and how do we know things… You have two problems [stemming from generative A.I. and large language models] that I think we’re going to face next year. One is that the amount of lies and bullshit that we are subjected to is going to increase exponentially, just because bad actors will use A.I. to generate all sorts of horrible garbage. But the second problem is that most of the use cases that people are thinking about—what A.I.s are going to solve—aren’t actually going to come to pass until we get a pretty different type of technology that is capable of actually reasoning, rather than just auto-completing words… It’s going to force people to think about epistemology and stuff that investors haven’t thought about. College philosophy majors will become employable.” —Phil Libin, co-founder and CEO, All Turtles and mmhmm

In A.I., while there is currently a mania for large language models (LLMs), expect a trough of disillusionment by about mid-year as people realize there is still a long way to go before A.I. can usefully replace human interaction.”  Russ Wilcox, partner, Pillar VC

“A major financial crime occurs at the behest of an A.I. algorithm, and prosecutors introduce a case against the software developers. The case reveals the models are open-source, and prosecutors stumble over themselves to establish a defendant.” —Chase Roberts, principal, Vertex Ventures

Hiring/Layoffs: Cleaving the workforce

Read more predictions on hiring and layoffs here.

“The 2022 norm has been to trim (10-20% of workforce), while the norm in 2023 will be to cleave (50%+ of workforce). Things will get worse before they get better.” —Mark Goldberg, partner, Index Ventures

Crypto: Sam Bankman-Finished

Read more predictions on crypto here.

“Dubai will become the crypto capital of the world. ” —Edith Yeung, general partner, Race Capital

“VC firms with dedicated crypto funds will reallocate to climate.” —Lauren Salz, co-founder and CEO, Sealed

Meta + the metaverse: Failure to launch

Read more predictions on the metaverse here.

“In 2023, we’ll likely see Meta shut down all of its current efforts and investments into completing its Metaverse due to continuous drop in revenue and investor pressure.” —Benoit Vatere, CEO and co-founder, Mammoth Media

Fundraising: The walking dead

“LP’s [will] start to redo documents getting more control and accountability over VCs in wake of FTX scandal.” —Jeff Carter, general partner, West Loop Ventures

“The public and private market valuation changes this year have motivated many LPs to take stock of where returns have come from, future return potential and a clearer picture of their own liquidity profile. As funds come back to market in 2023, I think we’ll see greater LP churn as they evaluate long-term partners they want to be invested with for the following decades, which could look meaningfully different than their current or past portfolio.” —Beezer Clarkson, partner, Sapphire Partners

“Institutional LPs will demand in-depth diligence (even at earliest stages) and prioritize financial firms vs. marketing efforts, once again raising the bar for first-time funds & subsequent re-ups. The few winners who emerge will build the Sequoias of tomorrow.” —Asher Kraut, partner, Generational Partners

“We’ll see some large funds (100M+) slowly, but publicly, fail after failing to raise additional LP capital for future funds, causing GPs to leave.” —Charley Ma, angel investor and GM, Fintech at Alloy

The Valley: Stayin’ alive

“The San Francisco Bay Area will persist as the home for the tech founders and for innovation. There was certainly a benefit to looking beyond major tech hubs for hiring during the pandemic, but we are seeing a return of the importance of Silicon Valley. There was a moment in time when another city could’ve become the de facto tech hub. Miami was too far behind; New York was the only other possibility. But the Valley holds unparalleled opportunity for tech networking and innovation as in-person events pick back up and startups continue to incorporate here. The network effect still exists. It’s just expensive to live here.” —Immad Akhund, co-founder and CEO, Mercury

“We firmly believe the San Francisco Bay Area will retain its dominant role and position—despite all reports and predictions to the contrary.”  —Andy Stinnes, general partner, Cloud Apps Capital Partners

Industrials + supply chain: Predictions en route

“We will see the impact of the sweeping industrial policy enacted in 2022 (the Inflation Reduction Act, the infrastructure bill, the CHIPS Act) start to materialize. By Q1 2023 a  lot of the details of how the legislation will be implemented will be worked out, and companies that are manufacturing clean technologies, selling to the U.S. government, and/or serving critical supply chains will get a big boost. Between persistently high global energy prices and the bills’ incentives, there will be an inflection point in the ‘electrification of everything,’ which will create huge opportunities for new entrants to become the iconic companies of tomorrow—we will have many more Teslas created in the next decade.” —Monica Varman, partner, G2 Venture Partners

“We’ll see the largest resurgence, and boldest proposals, of industrial policy since the 1950s and ’60s, both to meet social and economic goals and to guide the development and access to strategic technologies like semiconductors and artificial intelligence. This will be a response to the fracturing of global technology and business networks as the world’s supply chains are disrupted by war, great power competition, and climate change. Businesses that get ahead of this convergence between private and public will establish long-term resiliency and adapt quickly.” —Evan Smith, CEO and co-founder, Altana Technologies 

“U.S. businesses that are heavily dependent on supply chains and manufacturing in China will move some of their operations and supply lines to other Asian countries, including India and Vietnam.” —Jonathan Rouner, vice chairman and head of international M&A, Nomura

“Robotics, 3D printing, and automation industries will all get a boost as manufacturing firms bump into labor shortages as they increase US production and sourcing to take advantage of 45X tax credits. 45X, which directs $30 billion in tax credits over the next 10 years for US production of components such as solar panels, wind turbines, and batteries for electric vehicles, as well as the minerals that go into these products, sets up a labor challenge for these companies. With labor still in short supply, this will push robotic technologies to the forefront as companies try to keep pace with demands.” —Daniel Ketyer, investor, Piva Capital

Politics/government: HVAC at the White House

“The White House will replace its HVAC system with heat pumps.” —Andy Frank, founder and president, Sealed

“2023 will see regulators, legislators, and litigants continuing to focus on privacy rights of minors. 2022 bore witness to strong FTC messaging on children’s privacy rights, prominent investigations into social media companies for activities involving children, and the proposal of a number of bills concerning children’s privacy, as well as the passage of the transformative California Age Appropriate Design Code Act. In the coming year, we will see these trends continue, while we also witness the virtual explosion of technological solutions to assist in the protection of the privacy interests of minors.” —Jacqueline Klosek, partner, Goodwin Procter

“A prominent venture capitalist announces a primary campaign. This person runs as a barely-right-of-center Republican despite having previously been a prominent fundraiser for Democrats.’” —Chase Roberts, principal, Vertex Ventures

“2023 will be riddled with Big Tech companies developing corporate policies in direct response to evolving data privacy regulations. In absence of a federal data privacy law, Big Tech will have to shuffle their operations to meet varying state privacy policies. With increasing demands for consumer data protection, state policymakers will be forced to crack down on Big Tech’s data collection measures by issuing hefty fines.” —Steffen Schebesta, CEO North America & VP corporate development, Sendinblue

B2G will get hot (again) because government’s budgets will stay strong.” —Vijay Chattha, founder and CEO, VSC

Broader VC: To the moon

“Given the state of the market, nobody is expecting to see a return on their new investments for a long time. As a result, venture capitalists will be more inclined to invest in moonshot, seed-stage startups. At the same time, the talent at later-stage companies who aren’t seeing an influx in capital will be more inclined to take risks and start their own companies.” —Zeb Evans, founder and CEO, ClickUp

“The IPO market will be on ice until Q2, and will slowly re-open in H2 (aligned with when markets start to rebound).” —Jaime Moreno de Los Rios, COO, Secfi

“I raised money in 2011 and in 2021. In the span of a decade, VCs continue to fail female founders. In 2021, women secured only 2% of venture capital in the U.S. I predict that little will change next year and that venture capital firms will continue to neglect the need for implicit bias training. Please prove me wrong.” —Tracy Young, co-founder and CEO, TigerEye

Health care: On the mental

“More mental health and primary care integration and M&A activity will happen to deliver virtual wraparounds for in-person primary care and/or mental health. This will play a prominent role in enabling value capture in value-based/at-risk contract structures.” —Naomi Allen, co-founder and CEO, Brightline

“Due to the rise of digital infrastructure and no/low code solutions, insurance will become ‘invisible’ in everyday transactions. Companies that enable these features will gain access to vastly different datasets on consumer behavior, making underwriting faster and creating more personalized, predictive policies.” —Lily Lyman, partner, Underscore VC

“In 2023, we expect to see innovation in technologies addressing issues like social isolation for the age 50+ market given the fact that nearly 26 million Americans 50 or older now live alone, up from 15 million just twenty years ago. We need more human-to-human interactions facilitated by technology, from making friends to reskilling for employment to receiving healthcare in the home. Covid has accelerated the digital penetration and comfort of this audience, despite popular belief.” —Abby Miller Levy, managing partner and co-founder, Primetime Partners

M&A: Let’s get together

Read more predictions on M&A here.

“Online grocery and food delivery will see continued consolidation. Strategics will start to dabble in M&A as legacy retailers still have strong balance sheets and valuations for food e-commerce are getting attractive. Acquisition targets will have a strong financial profile but perhaps a weak balance sheet.” —Abhi Ramesh, founder and CEO, Misfits Market

Cyber: Fraud farming

“Fraud farms or fraud rings are the future of organized fraud. They are semi-automated operations that leverage human labor in combination with mobile technology to scale core fraud activities, including social engineering to steal identities and take over accounts. While content moderation has been the main focus of gig economy companies in 2022, next year, I predict that we will see a shift toward policy creation and automated abuse detection to prevent fraud before it happens and ensure repeat offenders are flagged and blocked.” —André Ferraz, CEO and founder, Incognia

“This past year ushered in worrying increases in both cyber and physical security—e.g., mass shootings, attacks. In response to this new reality and an ever-changing threat landscape, more and more boards will demand companies document their security readiness plans and emergency preparedness training for both cyber and physical threats. Through the process, these two critically important facets of safety and security will finally begin to break down their silos and come together to create advanced situational awareness as organizations are increasingly held responsible for the well-being of customers, visitors, and employees online and in person.” —Peter George, CEO, Evolv Technology

Financing: Please pass the credit

“Private credit will continue to be the overwhelming source of capital over broadly syndicated debt for LBOs until interest rates level off and the pricing flex built into broadly syndicated debt narrows and stabilizes. The check sizes of private credit lenders will continue to be smaller than those provided in early 2022, which means more private credit lenders clubbing together for sponsors for larger LBOs.” —Kris Ring, partner, Goodwin Procter

“In 2023, over 10% of private equity unrealized AUM (c. $2 trillion) will be financed by ‘alternative’ sources of liquidity and capital, principally by providers of NAV Finance and through continuation vehicles and strip sales.” —Stephen Quinn, managing director, 17Capital

“Public debt returns are going to pale in comparison to private debt as new issuance volume will remain depressed for several years until rates are no longer this elevated. As a result, it’s likely that we will see a resurgence of private debt, similar to what happened post global financial crisis, and one needs only to look at what Blackstone, KKR, and other large institutional asset allocators are doing to see where the opportunity lies in the coming year and beyond.” —Nelson Chu, founder and CEO, Percent

Happy New Year! It’s good to be back. See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Correction, Jan. 4, 2023: The online version of this newsletter has been corrected to reflect that Beezer Clarkson is a partner at Sapphire Partners, not Sapphire Ventures.

Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Cirba Solutions, a Charlotte-based battery management and materials processor, raised $245 million in funding from EQT.  

- Tredence, a San Jose-based data science and A.I. solutions company, raised $175 million in Series B funding from Advent International

- Arcadia, a Washington, D.C.-based climate technology company, raised $125 million in funding. Magnetar Capital led the round and was joined by investors including Keyframe Capital and Macquarie Asset Management’s Green Investment Group. 

- Aztec Network, a London-based encrypted blockchain developer, raised $100 million in Series B funding. Aa16z crypto led the round and was joined by investors including A Capital, King River, Variant, SV Angel, Hash Key, Fenbushi, and AVG.

- Razor Group, a Berlin-based e-commerce consumer goods businesses aggregator, raised $70 million in funding from L Catterton

- Advanced Navigation, a Sydney-based A.I. robotics and navigation technology developer, raised $68 million in Series B funding. KKR led the round and was joined by investors including AI Capital, Main Sequence, Malcolm Turnbull AC, In-Q-Tel, and Our Innovation Fund

- VMRay, a Bochum, Germany-based threat detection and analysis provider, raised $34 million in Series B funding. Tikehau Capital led the round and was joined by investors including NRW.BANK, Gründerfonds Ruhr, eCAPITAL, and High-Tech Gründerfonds

- Nectar, New York-based allergy care platform, raised $16.5 million in Series A funding. Harmony Partners led the round and was joined by investors including Juxtapose and Obvious Ventures

- OpenSolar, a Sydney-based solar design and proposal software company, raised $15 million in funding. Telstra Ventures led the round and was joined by investors including 2150, Titan Grove, and entrepreneurs Alec Guettel and Howard Wenger.

- Mangomint, a Los Angeles-based salon and spa software platform, raised $13 million in Series A funding. OpenView led the round and was joined by investors including startup300 and other angels.

- Automotus, a Los Angeles-based automated curb management solution, raised $9 million in seed funding co-led by CityRock Ventures, Quake Capital, Bridge Investments, Unbridled Ventures, Keiki Capital, NY Angels, Irish Angles, SUM Ventures, and LA’s Cleantech Incubator Impact Fund.

- Quris, a Boston and Tel Aviv-based drug prediction company, raised an additional $9 million in seed funding. SoftBank Vision Fund 2 led the round and was joined by investors including GlenRock Capital, iAngels, Welltech Ventures, and Richter Group

- Fiscozen, a Milan-based tax advisory software platform, raised €8 million ($8.44 million) in Series A funding. Keen Venture Partners led the round and was joined by United Ventures

- Prescribe FIT, a Columbus, Ohio-based remote monitoring and virtual lifestyle health startup, raised $4 million in seed funding led by Tamarind Hill.  

PRIVATE EQUITY

- Advent International agreed to acquire Maxar Technologies, a Westminster, Colo.-based  space solutions provider to the U.S. government and its allies for $6.4 billion. 

- Avista Capital Partners acquired Spear Education, a Scottsdale, Ariz.-based dental education provider. Financial terms were not disclosed.

- Electrical Components International, a Cerberus Capital Management portfolio company, acquired Manufacturing Resource Group, a Norwood, Mass.-based electro-mechanical devices and electrical distribution systems company. Financial terms were not disclosed.

- Integrated Polymer Solutions, a portfolio company of Arcline Investment Management, acquired AkroFire, a Lenexa, Kans.Kansas-based fire seal solutions and cargo bay repairs designer and manufacturer. Financial terms were not disclosed.

- Investcorp agreed to acquire a majority stake in Eficode, a Helsinki-based DevOps consulting and managed services provider. Financial terms were not disclosed.

- New State Capital Partners through its aviation-focused platform, New State Aviation Holdings acquired Blackhawk Aerospace, a Waco, Texas-based aircraft performance improvements company. Financial terms were not disclosed. 

- An affiliate of Peak Rock Capital acquired Seagull Scientific, a Bellevue, Wash.-based  software provider for designing, printing, and automating labels, barcodes, documents, and RFID tags production. Financial terms were not disclosed.

- Right Time Group of Companies, backed by Gryphon Investors, acquired Dunn Heating and Air Conditioning, a Waterloo, Canada-based heating and cooling services provider. Financial terms were not disclosed. 

- Thomas H. Lee Partners acquired a majority stake in Bynder, an Amsterdam-based digital asset management company. Financial terms were not disclosed. 

- TSG Consumer Partners acquired a majority stake in Radiance Holdings, a Denver-based portfolio of beauty, wellness, and self-care brands. Financial terms were not disclosed.

EXITS

- BC Partners agreed to acquire a majority stake in Madison Logic, a New York-based account-based marketing company, from Clarion Capital Partners. Financial terms were not disclosed. 

- CAIRE acquired MGC Diagnostics Corporation, a St. Paul, Minn.-based cardiorespiratory diagnostics company, from Altus Capital Partners. Financial terms were not disclosed.

- EQT agreed to acquire Madison Energy Investments, a Vienna, Va.-based solar and energy storage projects developer, from affiliates of Stonepeak Partners. Financial terms were not disclosed. 

- Level Equity acquired TeamDynamix, a Columbus, Ohio-based IT service management and project portfolio management platform, from K1 Investment Management. Financial terms were not disclosed.

- Pennzoil-Quaker State Company acquired Allied Reliability, a Houston-based asset health and reliability solutions provider, from Capstreet. Financial terms were not disclosed. 

OTHER

- Stifel Financial agreed to acquire Torreya Partners, a New York-based advisory firm. Financial terms were not disclosed.

SPAC

- Rain Enhancement Technologies, an Austin-based rainwater technology developer, agreed to go public via a merger with dMY Technology Group, Inc. VI, a SPAC. A deal is valued at $200 million. 

FUNDS + FUNDS OF FUNDS

- General Atlantic, a New York-based growth equity firm, raised approximately $3.5 billion for a fund focused on climate solutions.

- Linse Capital, a San Juan, Puerto Rico-based growth equity firm, raised $563 million for a fund focused on industrial technology companies. The company also raised $137 million for portfolio companies Skydio and Verkada.

- 10D, a Tel Aviv-based venture capital firm, raised $245 million across two funds. $185 million will invest in seed and Series A startups and $60 million in some of the firm’s early-stage portfolio companies.

PEOPLE

- ICG, a London-based alternative asset manager, hired Remko van der Erf as managing director. Formerly, he was with Van Lanschot Kempen.

- Sopris Capital, an Aspen-based venture capital firm, promoted Taylor Paul to senior vice president and Vickram Pradhan to vice president.

- TSG Consumer Partners, a Larkspur, Calif.-based private equity firm, promoted Adam Hemmer to managing director, Alec Barnett, Sam Pritzker, and James Zelnick to principal, Alec Fogarty to senior vice president, and Parker Brown to vice president. 

- Vertex Ventures US, a Palo Alto-based venture capital firm, hired Megan Reynolds as a principal. Formerly, she was with Crane Venture Partners

- Vista Equity Partners, an Austin-based venture capital firm, promoted Cheryl Leahy, Jessi Marshall, Amy Mathews, Drew Tate, and Steven White to managing director.

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