Moritz Grumbach founded two startups as the founder of the web companies Gastrozentrale and TraceMedics. Today he works as a coach and lecturer in the area of startup entrepreneurship and advises startup founders on building their companies under the brand DeinStartup.Coach. In this guest article, he gives an outlook on the startup year 2024.
Ukraine war, waves of bankruptcies, inflation – 2023 was a start-up year of global and national crises, but also a year of rapid technological innovation. What is moving the scene in the new year and what developments should we expect? Guest author Moritz Grumbach tries his hand at 10 startup predictions for 2024.
1. Startup bankruptcies continue, with recovery only from the end of 2024
Ongoing financing squeeze
The 2023 financial year has also left deep marks on the startup sector. The drastic decline in financing by almost 40% compared to the previous year, coupled with an unprecedented increase to almost 300 startup insolvencies, was just the tip of the iceberg. Delivery bottlenecks, price increases, and generally cautious consumer behavior led to intensive crisis meetings and sleepless nights for many founders, as can also be seen in unusually open statements on LinkedIn.
Cash is King
What does this mean for 2024? These problems will not disappear immediately. Even though many experts expect the financing volume to increase again from the third quarter onwards, many startups still have to expect significant valuation discounts, especially in later financing phases – if they even get that far with the available funds. The motto “Cash is King” counts now more than ever, both in fundraising and operational profitability.
The IPO market is recovering slightly
The stock exchange candidates in 2024 will also have to face the question of keeping numbers as black as possible. Investors will scrutinize contenders’ prospectuses more closely than they did a few years ago. However, experts are expecting a better IPO year than 2023, and with Flix, Volocopter, and Personio there are also some strong candidates in the starting shoes here.
2. AI slips out of the cot
European startups in the starting blocks
AI, AI, and more AI – there was no way around this topic in 2023. After many wow moments and billions invested in the US (still) monopolists, the question arises in 2024: can Europe follow suit? In the German startup strongholds of Berlin and Munich, but also the emerging boom regions around the research centers of Karlsruhe, Heidelberg, and Aachen, innovative young companies are working to build on the previous success stories of Celonis, DeepL, and other AI champions. It is now important to find a comfortable niche as an expert and specialist provider rather than enter into an unequal battle with the giants OpenAI and Bard.
The niche wins
There will still be plenty of these niches in 2024. AI-supported LegalTechs, for example, can legally check contracts in a matter of seconds, while innovative voice clones easily digitize the voice of a dubbing actor and make it available autonomously for other film projects. These possibilities emphasize the broad spectrum of future developments but also highlight problems about the threat of displacement in the labor market. “AI will not replace you but the person using AI will” is the motto, but at least AI needs regulation in the long term.
Regulation – brake or protection?
The fact that this regulation will be very different in regions such as Europe, China, and the USA makes the question of limiting artificial intelligence not only a legal question but is also likely to shape future global competitive advantages for decades. There are also several commercial and civil questions, such as remuneration for those whose content was fed to the tech giants’ LLMs – sometimes illegally. Although even ChatGPT cannot answer these questions satisfactorily, the EU is – as so often – taking its time.
3. Venture capital is reorganizing itself
Reluctance on the market
While the AI carousel is spinning ever faster – most recently in personnel matters – the venture capital market is currently facing a phase of consolidation. What many founders tend to forget: VCs also have to compete for capital from their investors. For the latter, after the booster returns of the Corona period, the question now arises: how much risk do we want to add to the portfolio? There is much to suggest that 2024 will be a year of waiting – at least until the third quarter.
VC decline and specialization
For some venture capitalists, however, this reluctance could last too long: mergers, market withdrawals, and the emergence of so-called zombie funds could be the result. But an increased emergence of more specialized investment vehicles, for example in the areas of ClimateTech or SpaceTech, is also conceivable.
Starke Opportunities in M&A and Secondary Market
In 2024, there will also be extensive opportunities for VCs to clean up their portfolio through M&A activities or so-called secondary sales, i.e. the resale of their company shares, and obtaining fresh cash. The lower valuations of startups, especially in the later-stage area, are also likely to lead to a recovery in the VC environment, especially towards the end of 2024. Either way, the boom is over for now.
4. Sustainability is finally being taken seriously
Everything is ESG
Some startups were rubbing their eyes in 2023: in addition to good performance and reasonably ethical management, VC investors were now also demanding statements and policies on so-called ESG topics (environmental, social, and governance) for the first time to comply with the requirements of the respective fund. This means that sustainability issues are also, but no longer, just a question of fine words.
On the contrary: investors have recognized that you can also make money with sustainability. Or even lose when you consider the horrendous costs of generating electricity for generative AI, which millions of people use to create artificial cat images in Midjourney. Accordingly, renewable energies and ClimateTech, together with artificial intelligence, are now moving into pole positions for future billion-dollar investments. Europe is now even a leader in ClimateTech – who would have thought that a few years ago?
The exciting question remains whether other sustainability fields such as AgriTech can also benefit from this development. Given the impending starvation catastrophes in Africa and other parts of the world due to climate change and the lack of grain deliveries from Ukraine, this can only be hoped for. And if you move on to less profitable but no less important ESG topics such as education, access to water, and combating poverty, it becomes clear: there is still a lot to do here, and not just for investors.
5. Security becomes the deciding factor
The world is becoming more uncertain – even for startups
Because of upcoming elections in over 40 countries worldwide, which represent over half of the world’s population, the global security situation remains fragile: supply chains, financial crises, migration – what has happened so far in what feels like a foreign part of the world is also becoming increasingly imminent for German startups in 2024 closer. Be it that their fund of funds collapses because the real estate bubble bursts in China, or because Instagram stock gets stuck in the Suez Canal for weeks.
A lot to do
This makes security an all-important issue: from securing procurement channels, to password-free authentication via iris scan, to factoring and the protection of company-owned IoT networks. The fact that hackers now also have AI tools doesn’t make things any easier – sometimes cumbersome official requirements do the rest.
DefenseTech comes from the dirty corner
While the race for corporate security is in full swing, the ongoing and bitter war in Ukraine has left the area of military investments out of the VC dirty corner for the first time. DefenseTech will become a serious startup category in 2024, at the latest after the mega-investment in the Munich company Helsing. And while NATO announces that it will invest EUR 1 billion in innovative young companies, some financially struggling startups may be wondering whether their products, for example in the hardware or security sectors, could not also be of use to the world’s armies.
6. HealthTech achieves a breakthrough
Although HealthTech has long been the focus of investors, many startups have long struggled to find enough customers in the area. The notoriously tight hospital budgets only played one role among many. Added to this was the wait-and-see attitude of many healthcare companies and the conspicuously inconspicuous slowness of the public sector in approving (and paying for) innovations, for example in the form of B2C health apps.
New technologies bring a boost
However, with the breakthrough of artificial intelligence, the tide could turn in 2024. What is important is that it is not just patient data-oriented companies that could benefit from this development. The application of AI should also help with simulations, for example in the emerging biotech sector. With the latest developments in the (soft) robotics sector, it can also be assumed that other fields, from microinvasive surgery to the – admittedly scary – long-running nursing robot will also benefit from technological innovations.
Because the world and therefore Germany is not getting any healthier. The increase in mental and chronic illnesses such as obesity, diabetes and high blood pressure are driving up expenses. And while some startups want to at least fundamentally improve self-management of addictions, others are already researching eternal life: the growing dichotomy of the world is also evident here.
7. Online marketing gets kerosene fuel
The revolution eats its children
The question “what’s hot and what’s not” also arises in online marketing, only here the wheel turns faster than in other areas. The boom in available AI tools for the creation of (hyper-personalized) content promises massive relief in the creation, but not the reception, of content. And while savvy entrepreneurs are already uploading online courses en masse with stolen content, artificial voices, and exorbitant prices, the creator economy may end up overtaking itself.
The brand as a point of escape or attack
In addition, Google is displaying its results for users’ questions even more than before, thereby further cannibalizing generic providers. The power of the brand will now be even more important – especially outside of the usual search engines. Instead of individual keywords, the brand will now control the entire customer journey across all channels, content, and locations, from employer branding to investment strategy. This is nothing fundamentally new compared to 2023, but it will take on a new dimension and speed in 2024.
With increasingly uncertain environments, the importance of communities as safe social havens will become even more prominent in marketing in 2024. People practice private employer branding in their LinkedIn circles, decide on purchases as well as political opinions in the WhatsApp group, and are equally susceptible and allergic to fake news and false promises. For startups, in 2024 this means focusing more than ever on the topics of experience, authority, and trustworthiness – and at the same time always keeping their finger on the trigger when it comes to crisis PR.
8. Blockchain is entering the mainstream
New target groups – new risk
With the recent approval of Bitcoin ETFs by the US Securities and Exchange Commission (SEC), the first and best-known of the many existing cryptocurrencies has now finally established itself. Whether this was in the spirit of its inventor remains unanswered. The fact is, however, that blockchain-based currencies will soon become available to a wide range of investors and have therefore reached the mainstream, or at least the establishment. Anyone who has followed the collapse of FTX and other crypto companies knows that blockchain can probably bring security to all industries, except the financial sector.
Back to the original idea
However, with the upcoming data revolution in the production sector, increasing hacker attacks, and ongoing military conflicts, 2024 could be the year in which the often ridiculed and often misunderstood technology finally finds its way into everyday SME business in many industries. In addition to the manufacturing industry and the aforementioned financial sector, these include logistics, the health sector, and public authorities. However, with the recent cancellation of the German federal government’s digitization budget, it remains to be seen whether the latter will happen in 2025.
Trend towards functionalization
Not only original providers of blockchain technologies will benefit from this development, but also secondary services, for example in the area of interoperability. This progressive functionalization and diversification of blockchain-based services will also further strengthen the (new) development of NFT technology, which is already very successful in the gaming sector, for example. It would be desirable for blockchain to finally become successful outside of the financial sector.
9. Hardware gets a second chance
The real world needs technology too
Admittedly, this forecast is uncertain. But there is some evidence to suggest that 2024 will be the year of the return of hardware startups and that the former stepchild of VC investors could receive a new look. Even today, houses have to be built, productions automated, wheat fields harvested and cardiac arteries operated on – and all of this with significantly higher efficiency and fewer staff than before. The latest innovations in materials research, mechanical engineering, and robotics could mean that a breath of fresh air will finally blow into the hardware sector in 2024. Another positive factor is that many companies want to fundamentally reorganize their IT and production – keyword digital twin. There are also issues of efficiency and automation, especially in warehousing and logistics: overall, not bad conditions for a well-deserved renaissance.
10. SpaceTech – the world is not enough
This rebirth could also accelerate the rapid development in the space tech sector. Not only rich private astronauts but also communications companies and the military are interested in new extraterrestrial innovations. From mini-satellites, which recently became the most important and sometimes only Internet access in war-torn Ukraine, to reusable rockets and bionic suits – dual use is also a driver of success here. The fact that garbage has to be collected in space and loneliness has to be overcome makes the matter both likable and dangerous. Because it can be assumed that as our technologies continue to expand into space, we will not solve our problems, but will only expand them.
So if one would like to conclude in the still young year of 2024, it could be this: the world is now finally and irrevocably connected – in the digital but also the real sphere. Startups, consumers, and investors now understand that the word “ecosystem” is not a buzzword for pitch decks and unsweetened spreads, but rather an expression of interconnections and dependencies – for better or worse. 2023 is dead, long live 2024 – only faster, more violent, and with development potential in all directions. No matter how you deal with these changes as an optimist or pessimist, as an observer or startup founder, one thing 2024 will not be: boring.