I predict 2023 is going to be a year of reordering as the true breakthrough companies separate themselves from the rest of the pack while many others are acquired or fade away.

It’s been a couple of years since I put forward a list of predictions, but 2023 is going to be such a defining year for the startup and venture capital worlds that I feel compelled to offer some this year. I predict 2023 is going to be a year of reordering as the true breakthrough companies separate themselves from the rest of the pack while many others are acquired or fade away.

Here are some predictions I can’t wait to track this year:

1. FEWER VC DOLLARS RAISED

Higher interest rates to combat inflation mean that the easy money flowing to venture capital has slowed as investors can find significant returns among other asset classes. While some firms raised record funds in 2022, much of those funds were actually raised in 2021. We’re only starting to see the impact now because of the lag in reporting and announcements.

2. FEWER VC DOLLARS DEPLOYED

VCs invested $445 billion in 2022—marking a 35% decline compared to 2021, according to an analysis of Crunchbase data. I expect this trend to continue even more dramatically because many VCs didn’t start to pull back until Q3 of 2022.

3. A NUMBER OF STARTUPS WILL FAIL

Many startups have a plan and the cash required to operate profitably. They are in a strong position and can capitalize on the weaker position many other startups are in. The current conditions present an opportunity for them to pick up great talent more affordably than before and to acquire competitors for pennies on the dollar. On the other hand, startups that failed to raise money in 2022 and are not on the road to profitability could be in a difficult position this year as VCs pull back. I expect to see a number of startups go under when they can’t raise a new round.

4. VALUATIONS WILL RETURN TO SIGNIFICANTLY LOWER LEVELS

Some of the data I am seeing suggests the following corrections have occurred: an 80% drop in series C valuations to $130mm pre-money, a 70% drop in series B valuations to $90mm pre-money, and a 40% drop in series A valuations to $45mm pre-money. Other data suggests even more significant corrections—putting things around 2015 levels. A word of caution to founders: Your last round valuation is no longer relevant to what the next pricing event will be. You will likely need to make far more progress than anticipated to get back to a flat valuation.

5. M&A ACTIVITY INCREASES

As part of the realignment that I’ve outlined so far, I predict there will also be more mergers and acquisitions. With interest rates increasing and VCs holding onto funds, many startups may be forced to merge or be acquired by larger players—likely at a significant discount.

6. INCREASE IN STARTUP FORMATION

I expect to see a new class of startups emerge this year. Laid-off Google and Amazon employees could start new businesses that tackle big challenges facing the planet. Perhaps the next Google or Amazon will emerge from this downturn much like the early 2000s dot-com bubble led to a new generation of breakout tech companies.

7. BILLIONS WILL FLOW INTO CLIMATE TECH

Thanks to the Inflation Reduction Act and the CHIPS Act, I expect to see an increase in climate tech investing as government loans and grants remove a great deal of risk in the sector. More than a quarter of every venture dollar invested in 2022 went into a climate tech company, according to PwC. I expect that to stay the same, if not increase.

8. THE DIGITAL DIVIDE GETS SMALLER

I predict global broadband networks will be enabled by low-Earth-orbit satellite mega-constellations that bring the internet to communities that have never had it before. Fixed wireless technologies may also provide broadband internet in rural communities thanks to the availability of the massive block of unlicensed spectrum.

9. CARBON REMOVAL TECHNOLOGIES WILL HAVE A BREAKOUT YEAR

Once again, as a result of the Inflation Reduction Act, the number of carbon removal projects is set to increase dramatically. The IRA prices carbon at $85 per ton for point-source carbon capture and storage and $180 per ton for direct air capture—both of which were priced at $50 per ton before the bill. The credit is also now available through direct pay, meaning it can finally be used by those with low tax liabilities.

10. FUSION REMAINS HOT

I believe there will be more milestones achieved at Lawrence Livermore’s National Ignition Facility and an increase in investment in startups looking to commercialize fusion technology. This is the first time in human history that fusion energy is actually only a decade away.

11. INVESTORS MOVE AWAY FROM CRYPTO INVESTMENTS FOR GREENER PASTURES

Every week, there seems to be a new crypto bankruptcy. I expect investors to grow weary of hyped crypto startups and turn to more meaningful investments in clean energy and food production.

12. THE CULTIVATED PROTEIN CATEGORY WILL SEE INCREASED FUNDING

As startups move closer to FDA approval for their products, I think we’ll see investment become more concentrated in a few companies. The most advanced companies may begin early commercialization and successfully fundraise while many other players fade away.

13. SPACEX’S STARSHIP WILL SUCCESSFULLY REACH ORBIT

I predict this will kick off the start of another reduction in launch costs over the next 10 years, opening the way for more space-based services and paving a highway to Mars and beyond.

14. SATELLITE COMMUNICATION TAKES THE NEW SPACE THRONE

Launch companies dominated much of the past decade, but this year, I predict satellite communications will ascend to regain the throne as the key sector of the space economy. 

What do you think I missed? I can’t wait to see how these age at the end of the year.