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SVB: What Startup Founders Could Expect From the Market in 2023
The economy is reeling from inflation. Supply chains are dislocated. The effects of the pandemic linger as the economy dips toward a recession. Caught in the middle of it all, startups and companies of all sizes are scrambling to react.
But what does all this mean for startups and founders? As chief investment officer of SVB Private, Shannon Saccocia spends her time helping startups, founders and executives make sense of economic conditions. During a fireside chat in January, Saccocia broke down the factors leading to the market downturn, outlined what to expect moving into 2023, and estimated which industries might prove to be a dark horse.
The road to recovery
The global macroeconomic environment could face a long road to recovery. Some economists are expecting recessionary indicators to last through 2024, and the Federal Reserve is predicting a continued and broad slowdown in the overall US economy.
While layoffs at tech giants such as Google, Microsoft and Salesforce have made headlines, Saccocia believes there are true bright spots in the innovation economy.
“The Fed is projecting a year from now that unemployment will be four and a half percent. That’s 1.2 million jobs lost. So it's going to have to come from other places besides technology and financial services,” said Saccocia. For this reason, she believes a broader slowdown would likely ripple across the economy — rather than stay localized in the tech/startup ecosystem.
While choppy market conditions will create some hesitancy among investors, it won’t completely dry up funding because high net-worth individuals, family offices, pensions and venture capital firms still have commitments to deploy sidelined capital, said Saccocia.
Private investors will continue to be attracted to truly innovative and disruptive businesses. However, investors are prioritizing startups with strong unit economics and a path to profitability, even for early-stage and growth-stage companies, in order to make up for muted returns over the past several quarters. Free cash flow is here to stay, according to Saccocia.
But as the equity markets start to stabilize, the IPO market could open up as well, said Saccocia, who predicts that investor interest in public offerings could start to tick up as early as the beginning of 2024. Prior to that, she expects to see strategic acquisitions in the M&A market.
Provided the Federal Reserve can counter inflation and investors begin deploying money back into the market, economic recovery could begin as soon as the first few quarters of 2024, said Saccocia, but that doesn't mean all industries will bounce back or benefit equally.
Some industries may rise from the ashes faster
Even as markets improve, it won’t be across the board. “It’s not necessarily going to be a rising tide lifting all boats in the first half of 2024,” said Saccocia. “I think it will be selective.”
The industries best poised to benefit over the coming quarters are those in areas such as cybersecurity, aerospace and defense, which have become more sought-after in an uncertain geopolitical environment.
The opportunities for cybersecurity startups are especially promising to Saccocia. In her view, the total addressable market for cybersecurity companies is “virtually unlimited” if this new phase of geopolitical activity continues.
Similarly, other areas critical to national security, such as the pharmaceutical or semiconductor industries, may increasingly move back onshore as global supply chains continue to struggle while tension between nations grows more precarious.
Other sectors that will likely remain stable include e-commerce and consumer products. While e-commerce demand has slowed since the pandemic, the sector will continue to be important to investors, said Saccocia. The consumer products space should also do well because of the consistency of consumer spending.
Consumerism is the backbone of the American economy, and it will likely stay resilient through economic fluctuations. This is demonstrated by the most recent University of Michigan consumer sentiment index that hit an eight-month high (as of December publication).
“The good thing about being in the consumer space is that consumers always spend money,” said Saccocia. “They may spend a little bit less when they're less confident, but it is the backbone of the US economy.”
Los Angeles-based startups in particular could benefit as the market improves. Not only does Los Angeles have a strong consumer products market, but the city is also home to a number of industries that could benefit from increased government spending.
Buoyed by giants like Northrop Grumman and SpaceX, Los Angeles has a thriving aerospace and defense market, and is the heart of the electric vehicle market, which could rebound with increased federal spending and consumer tax incentives. Additionally, President Biden’s Infrastructure Law could present vast opportunities for the manufacturing and construction industries — other areas where Los Angeles is uniquely strong.
A renewed focus on maximizing margins
Regardless of industry or location, startups of all sizes will need to maintain an intense focus on profit margins.
While investors understand that not much can be done in the current market environment to expand margins, that doesn’t mean companies are entirely off the hook. Investors may still expect to see margin improvement within the next two to four years, said Saccocia, and the path to profitability is king.
To improve margins, many startups are already reducing spending, renegotiating vendor agreements and being more thoughtful about marketing expenses, according to SVB’s Q4 earnings report. Maintaining this kind of financial discipline can help startups strategize for long-term success, and startups in LA are uniquely positioned to exit this economic cycle with strength.
To learn more about SVB’s distinct insights into the venture markets, read our signature reports and check out industry guidance for startup founders.
Disclaimer: All non-SVB named companies are independent third parties and are not affiliated with Silicon Valley Bank or SVB Financial Group.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which have not been independently verified by us; and, as such, we do not represent that the information is accurate or complete. You should obtain relevant and specific professional advice before making any investment or other decision. Silicon Valley Bank is not responsible for any cost, claim or loss associated with your use of this material.
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As one of the most diverse cities in the world, Los Angeles is home to almost 5 million people who identify as Hispanic or Latino/a. Yet, many feel they still lack representation in the city’s tech space.
“I can safely say that last year’s LA tech week hosted all of the events on the west side, and very few were focused on telling Latino and Latina entrepreneurial stories,” said Valeria Martinez, investor at VamosVentures. “We wanted to change that this year.”
The event, titled “The East Side Story –– Latino/a Founders and Funders in LA,” was held at Los Angeles Cleantech Incubator (LACI) in the vibrant Arts District with participation from VamosVentures, LatinxVC, VCFamilia, Supply Change Capital, and LEEAF.
The event was centered around stories about the Latino/a community told by its members. “Storytelling is the most powerful tool we have as human beings,” said restauranteur Bricia Lopez. “We are all here because of the stories that were told to us and the stories that were read to us.”
Lopez’s father migrated to Guadalajara, Mexico because he heard a story about a better life on the other side of the border. While he didn’t have the opportunity to see that “better life,” Lopez wants to share his story with the world in the hopes of inspiring others to share their stories.
“I think for many generations, we were the gatekeepers holding us back from telling our own stories,” Lopez said. “But we are now empowered to share our stories and when we talk about wanting to hear stories from us, it's because we want a mirror into the possibility of who we can become. To me that was how powerful a story is.”
With over 400 RSVPs and a packed house that ranged from founders and investors to vendors and aspiring entrepreneurs, the event brought light to a community hungry for stories they can connect and relate to.
Fanny Grande, CEO of Avenida Entertainment Group, said that on-screen stories about the Latino community are very limited. This lack of representation inspired her to start her production company that aims to empower independent creators.
“The advances of technology, social media and the new generation being very vocal about how they want to be represented gives me hope that things are going to change,” Grande said.
One way Avenida Entertainment Group champions its creators is by providing tech solutions to help fund and produce projects. At the event, Grande announced that her production company plans to launch an English-language streaming service for Latinos to provide visibility to these projects.
“A lot of our clients are so happy that not only did they get their projects made, they're going to be seen by the community who funded the project,” she said.
Patty Rodriguez, co-founder of publishing company Lil’ Libros, aims to give representation to the Latino/a community by publishing bilingual children’s books.
Rodriguez said that entrepreneurship was never a part of her vocabulary while growing up. She also had no experience in publishing before she started her business, but she believed that “we belong on these platforms.” For her, the greatest moments are opening the doors for Latino/a authors and seeing copies of their books at major bookstores.
“It's so beautiful to see your dreams come true and you're working every morning to see them,” she said. “It's wonderful to see them at Target, Barnes & Nobles across the country.”
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
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MONDAY
LA Hardtech: Local Talent Meets CEOs: Want to see robots in action? This hardtech event will showcase product demos and feature conversations about all things aircrafts, satellites, electric vehicles, robots and medical devices. June 5 from 5 p.m. to 8 p.m. in El Segundo.
Technology and Storytelling for Social Good: LA2050 and Goldhirsh Foundation president Tara Roth will moderate a panel featuring Alexis Cabrera of 9 Dots, Laura Gonzalez of Los Angeles Cleantech Incubator (LACI), Sabra Williams of Creative Acts, and Paul Lanctot of The Debt Collective. Tickets are sold out, but stay tuned for dot.LA’s coverage of how technology can advance social good.
TUESDAY
Building a Startup Using Generative AI: As AI takes over the tech space, more startups are eyeing the burgeoning tool. Google’s west coast Head of VC and Startup Partnerships Alexandra Dumas will moderate a panel focused on how startups can best utilize AI. June 6 from 9 a.m. to 11:30 a.m. in Venice.
AI &Music: The Black Eyed Peas’ will.i.am will join Google AI’s K Allado-McDowell, Never Before Heard Sounds’ Parag Mital and SOMMS.ai’s Matthew Adell to discuss how AI is changing music composition and production. June 6 from 6 p.m. to 10 p.m. in Hollywood.
BLCK VC + Diversity VC: Navigating the Capital Landscape Panel: Two VCs focused on helping people of color grow their investing careers, BLCK VC and Diversity VC, will host a panel discussion on how diverse fund managers and founders can secure funding. June 6 from 9 a.m. to 11 a.m. in West L.A.
Female Founders: Female Founders: Planning. Pivoting. Profiting: Female entrepreneurs—including Mia Pokriefka of Huxly, Anjali Kundra of Partender, Sunny Wu of LE ORA and Montré Moore of AMP Beauty LA—will discuss how women can set their businesses up for success. June 6 from 2 p.m. to 4 p.m. in Fairfax.
LA #TechWeek VC Kickoff Party: dot.LA executive chairman Spencer Rascoff’s venture fund 75 & Sunny is partnering with VC firm Crosscut to launch L.A. Tech week with music, drinks and networking. June 6 from 6:30 p.m. to 9:30 p.m. in Pacific Palisades.
WEDNESDAY
SUPERCHARGE LA: Access to Capital & Cocktails: Join dot.LA for a night of networking and live music with a set by renowned artist, DJ, producer, and photographer D-Nice. In addition, LA Chargers running back Austin Ekeler will be joined by Grammy award winning artist Miguel and other leaders from LA venture capital to discuss how founders can increase their funding. June 7 from 6 p.m. to 10 p.m. in Santa Monica.
Hollywood Dream: Star in 3D Movie with Your Avatar, Rendered from Script with PentoPix: Storytellers from PentoPix, an AI video generator, will share their thoughts on how the new technology can change the film production process. Attendees can insert their own 3D avatar into a story created for the event. June 7 from 9 a.m. to 7 p.m. in Santa Monica.
THURSDAY
Aerospace Meets Climate Tech: Learn more about how climate tech is transforming the aerospace industry at this panel featuring the industry’s founders and investors. Get a look at how Arc Boats made an electric sport boat, tour the company’s production floor and hear from its team of former rocket scientists. June 8 from 5 p.m. to 8 p.m. in Los Angeles.
Marketing in the Age of AI: What Startups & Creatives Need to Know About the Changing Creative Industry: Learn how brand strategists are utilizing AI to upend the creative process while still reaching audiences. Software platforms Melodize.ai and Davant Systems and advertising platform Trade Secret will dive into AI-generated short-form videos and images. June 8 from 2 p.m. to 4 p.m. in Playa Vista.
Content Capital: Where Investors Meet Creators: Techstars Managing Director Melissa Pegus will discuss how the next generation of the creator economy can find inspiration—and funding. June 8 from 6 p.m. to 8 p.m. in Santa Monica.
FRIDAY
Sports in LA: Investing, Founding and Growing: Sports PR agency Athlete Strategies will host an event featuring founders, VCs and athletes sharing industry investment opportunities and trends. June 9 from 11 a.m. to 4 p.m. in Santa Monica.
Moonshot Thinking & Radical Solutions: Google and “X”—an innovation lab within Alphabet dedicated to building technology that will improve people’s lives—will discuss setting goals, fostering breakthroughs and redefining humanity. June 9 from 9 a.m. to 11:30 a.m. in Playa Vista.
The Closeout Event by Mantis VC and M13: Wrap up L.A. Tech Week with a night of networking. Join founders, VCs and investors at an event put on by The Chainsmokers’ Mantis VC and M13. June 9 from 7 p.m. to 10 p.m. in Santa Monica.
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Kristin Snyder is dot.LA's 2022/23 Editorial Fellow. She previously interned with Tiger Oak Media and led the arts section for UCLA's Daily Bruin.