Thread by @robgo

During an 18 hour flight to Singapore, I wrote about my 4 predictions for 2023. During my jet-lagged induced stupor, I forgot all about it until now. So, we few weeks delayed, here are four thoughts and predictions about the VC and tech market in 2023

#1a Hot take: For early stage companies, 2023 will NOT be a year where profitability trumps growth. That is only true for later stage businesses.

This will be a year where the cream rises to the top. And for early stage startups, that still means very very fast growth.

Early stage funding markets reward outliers. The outliers will be able to show explosive growth AND promising business fundamentals. Don't lure yourself into thinking that "ok" growth with solid economics will win over investors. It's won't.

And it's in soft markets that growth really stands out. With capital harder to come by and enterprises and consumers tightening their budgets, companies that can show stellar growth are that much more rare and attractive.

#2: This is the year recruit transformational talent

The downside of hot markets is that talent becomes incredibly challenging attract and retain. So, the flip side is that 2023 will be an amazing year to bring on a few really key hires that you know are truly committed.

There were a lot more startup mercenaries out there the last few years chasing the promise of riches over mission and growth. That will shift this year.

We've already started seeing this in our portfolio. Some great talent was stuck in large unicorns because the financial incentives were so extraordinary. Many planned to return to earlier stage companies at some point, and this market is accelerating that decision

TLDR - your dream hire may be more attainable now than they have ever been. And their best alternatives are probably less attractive than they have been in a long time.

#3 Times will continue to be tough for non-software, non B2B businesses. But it will also be easier to be contrarian.

As I have said many times over the last few months, the strike zone for most investors has gotten very very narrow. That's unlikely to change.

Underwriting improved margins and unit economics for unprofitable SaaS companies is hard enough, and investors don't want to do any additional work to try to underwrite additional risk around hardware, services, human labor, consumer preferences, paid acquisition channels, etc.

Also, the public market comps for all growth companies is 💩 but for companies that aren't pure software, it's 💩💩💩

But I think in a sneaky way, it will easier to stand out as a contrarian company this year.

The challenge during frothy times is that unnatural things start to happen funded by excess capital. It’s harder for a contrarian product or GTM approach to stand out when more conventional companies suck all the air out of the room with their massive budgets.

When the market is less frenzied, creative experiments actually have some room to shine. Investors will have time to be more thoughtful and discerning and will have a better chance of appreciating a company that is showing unusual promise because of a contrarian approach.

#4: The captain obvious prediction: we are going to have a massive AI Bubble.

I remember 2013-15 as peak AI. Every company attached “AI” to their pitch. In 99% of the cases, that “AI” was just software and algorithms. It was artificial and not intelligent and most companies didn’t have anywhere near the datasets required to do anything interesting.

2023 will be the year of AI again, powered by OpenAI and others. This will be a total bubble! Companies will be funded that create a very light UI layer on top of these models, which will be really cool and gain some traction, but will fail to create truly defensible value

Lots of capital will pour into these companies and some businesses that barely leverage AI will put AI front and center in their offerings. Many hundreds of millions of dollars will be lost around around this hype cycle.

But I'm actually quite bullish overall.

I liken this bubble to the Web2.0 bubble or maybe the initial frenzy around cloud computing. Lots of money will be lost and many failures will occur (some very high profile). But some generational companies will also be built. And this will be fertile ground for years.

I actually think that this might be the first time in my career where I actually love the potential of a market more than I hate the hype. I wish that this area was more of a secret, but it's not, and It's up to us to figure out how best to approach it.

So, those are my thoughts for 2023. Only a few weeks late, but hopefully not too stale! I'm curious to hear what everyone thinks!