Gurley, Gerstner, and Calacanis on the State of the Tech Markets in Jan-2024

State of the Tech Markets in Jan-2024: a discussion among David Weisburd, Bill Gurley, Brad Gerstner, and Jason Calacanis shed light on the challenges faced by startups, drawing parallels to the dotcom crash.

Gurley, Gerstner, and Calacanis on the
State of the Tech Markets in Jan-2024


In a Jan-6-2024 conversation (on Episode 1875 of This Week in Startups.) hosted by David Weisburd, Bill Gurley, Brad Gerstner, and Jason Calacanis discussed the state of the tech markets in 2023, drawing comparisons to the dotcom crash of 2001. They explored the reasons behind the shutdown of startups in 2023 and speculated on what to expect in 2024.

The year 2023 marked a significant turning point for the tech industry, as startups funded during the era of Zero Interest Rate Policies (ZIRPs) began facing financial challenges. Although ZIRPs technically ended in March 2022, the effects of this policy were felt more acutely in 2023 due to the lag in funding impact. According to Peter Walker at Carta, roughly 1500 companies, representing about 50% of the market, shut down in 2023. This staggering number of closures was reminiscent of the dotcom crash of 2001, raising questions about the future of startups in 2024.

John Redmond from Discovery, a large hedge fund, estimated that approximately 1200 private companies would exhaust their financial reserves by the end of 2024, signaling the possibility of further startup closures. This forecast suggested that 2023 might have been the worst year, with some hope for improvement in 2024.

One key indicator of the market’s health was the decline in rounds with special terms, such as liquidation preference, participation terms, and cumulative dividends. These terms had reached record highs in Q1 2023 but declined significantly by Q3 2023.

Bill Gurley, a seasoned investor, provided his perspective on the industry’s cyclical nature, emphasizing the gradual buildup of risk followed by a sudden risk-off period. Valuations expanded as more risk was taken, leading to a market bubble. However, this time was different because many startups had amassed substantial capital, delaying the crash’s effects.

Gurley anticipated that 2024 could be as challenging as 2023, driven by the amount of capital startups had accumulated. He noted that valuations had collapsed but were starting to recover, and it would take time for founders and board members to accept the new reality.

The conversation highlighted the changing expectations for what constitutes a successful company. Rules regarding profitability, cash flow positivity, and risk tolerance had evolved significantly in recent years, making it challenging for some startups to meet these new standards.

Brad Gerstner discussed the impact of ZIRPs on tech multiples, noting a dramatic increase in valuations from 2020 to 2021. The influx of government stimulus and negative interest rates further fueled the venture industry, leading to overcapitalization. However, as interest rates rose and growth rates slowed, the public markets began correcting.

Gerstner explained that 2023 marked the start of a working-out phase for overcapitalized companies. Founders and boards had three options: shutting down the company, arranging a sale, or attempting to grow into their valuations. The last option was the most challenging, and only a small percentage of companies funded in 2021 could achieve it.

The conversation illustrated the industry’s adjustment to a more rational valuation environment, with examples like Instacart going public at a lower valuation than its peak in the private markets. Founders and boards were coming to terms with the fact that the market might not return to the previous exuberance.

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