Innovation Blog

A Case for 2024 Optimism

2023 was a doozy.  It was a year marked by expanding global conflicts, the escalation of big power politics, continued economic uncertainty, and growing political polarization. These factors collectively led to a growing national and global dialogue of division and decline.

2023 was also year in which the promise and potential of startups were again under pressure as valuations deflated, highly public failures reignited apprehensions around the Silicon Valley elite, and irresponsible venture came back into the limelight. Marc Andreeson’s 2023 techno-optimist manifesto captured, yes, the aspirations but also the hubris, grossly overlooking the incentives, structures, and systems that have characterized the last 15 years of venture.  Incentives that have pushed venture capital into increasingly narrow fields as published by Josh Lerner and Ramana Nanda in their paper in the Journal of Economic Perspectives. The net result of this concentration (relative underinvestment in technological innovation in areas like deep tech, hardware, materials, and other critical emerging technologies that characterized the earliest days of venture) came sharply into focus in 2023 as U.S concern over technological competitiveness much less supremacy came to the surface.

And yet, despite this relatively gloomy assessment, thousands of optimists are still working across the country to create progress and prosperity through a unique force: startups. If small businesses are the backbone of the American economy, then startups, small businesses that aspire to be big, are the lifeblood. Once a decidedly American concept, startup-led innovation is now a global movement. You see, startups convert high-potential discoveries into real-world products. They generate meaningful, quality jobs, and wealth. They also transform industries or business models – whether how we work, move, build, or live. At MassChallenge, we know. We have worked with 4,200 since we opened our doors during the Great Recession in 2009. MassChallenge startups have generated billions in economic value, including in sectors such as transportation, cyber security, novel therapeutics, and financial services.  Almost 2% have achieved the heralded unicorn status; 65% are still active or have been acquired. These companies are building a new economic backbone, driven by a shared ethos to challenge the status quo, take risks, and create something new.   

A resurging interest by the U.S and other governments in shoring up critical technology leadership, the bottoming of the venture recession, and the coming of age of AI and biotech gives me hope that 2024 may just be the year in which we welcome in the next era of startups. Here is how I think about the mega trends that will shape 2024 and beyond:

First, innovation and optimism. If we look back to the Great Depression, World War II, the Space Race, the Information Age, and Post-9/11, innovation and entrepreneurship have been a singular force for progress. As the U.S. strives to re-establish its global leadership and to re-inspire the American people, we expect to see more individuals, leaders and politicians re-establish the connection between innovation, startups, and American exceptionalism. And while this will certainly continue to be the case on the coasts, we expect to see accelerating activity from contending ecosystems like Dallas, Charlotte, and Pittsburgh, to name only a few. Abroad, the exportation of the “startup mindset” and declining costs to start a company, means we will continue to see exceptional entrepreneurs launch and build from less recognized startup ecosystems across the globe, whether Tanzania, Chile, or Korea. Innovation and optimism will play out also in the two most consequential fields of 2024: artificial intelligence and biotechnology, which have grown to represent almost 50% of MassChallenge applications over the last several years. We expect to see accelerating activity in these two fields as entrepreneurs capitalize on technology breakthroughs to apply AI and biotech to everything from everyday productivity to new agricultural inputs to Alzheimer detection and cure.

Second, innovation and infrastructure. I expect that venture capital as an asset class will continue to contract through the first part of 2023, even if deal-volume begins to pick back up. We will see additional venture capital firms shutter and likely more high-profile bankruptcies. However, this market reset will be partially offset (at least in the early stage) by continued investment in core “innovation infrastructure” to support pre-commercial to early commercial activity. Now, I am not talking about another flurry of corporate accelerators (I hope!). I am talking about the flow-through of at-scale public and philanthropic investment that began in 2023 to support onramps and innovation infrastructure required to identify, incubate, and elevate talent and technologies, even before they are obviously investable. In the U.S., we will see the flow-through of mega-dollars from ARPA-H, CHIPS, and EDA in the advancement of specific technology categories and regional ecosystem initiatives. Internationally, we will continue to see aggressive investment from areas of the world like Japan, Saudi Arabia and Singapore who see a direct linkage between their economic future and effective innovation economies. The big question is whether these investments will effectively catalyze or unintentionally crowd out needed follow-on by private market actors. This will be the 2025 question of the year.  

Third, real-economy innovation and new models. I expect to see most of traditional venture capital continue to refocus in 2023 on winning strategies in software (for simplicity I include artificial intelligence here) and scale.   But as more founders, companies, and governments ask where and how artificial intelligence, advanced materials, quantum computing and biotech can materially touch “the real economy,” look for two things. The first is growing instances of “convergent” technology companies that bring together historically distinctive fields – for example, computer science, biology, materials – into a single solution. MC alumni such as, Pison Technology and Genetika are just three examples from our portfolio that spotlight the potential breakthroughs in sustainability/space commercialization, security and health (our 2024 Big Bet areas).

This macro-trend will also drive the announcement of additional novel public-private partnerships such as we have seen with SpaceX<>NASA, NATO DIANA, CancerX, to address the novel gaps and frictions these startups will face, whether regulatory, capital, partnership or other. This will include continued exploration of the critical role of non-dilutive capital, like the federal SBIR (small business innovation research) program or our long-term partnership with the International Space Station National Lab. I expect also to seen expanding experimentation with blended capital from family offices, such as we have seen from Emerson Collective and Lyda Hill Philanthropies. This trend will demand that forward-leaning early-stage partners adapt startup playbooks to meet the needs of a new startup prototype, as we have already seen from organizations like MassChallenge or venture capital firms A16Z and General Catalyst, or get left out.

In short, 2024 will be a year of resurgence for the startup sector globally. Just don’t expect it to look like 1999 or 2021. Expect continued decentralization of Silicon Valley, supported bottoms up by an accelerating “startup renaissance” and top down by major investments in innovation infrastructure. Expect “classic” startup activity to be complimented by an ambitious new wave of entrepreneurs building comfortably in complexity: whether technology, business model or sector that will demand more from the ecosystem. This will increasingly require a delicate interplay between public and private investment to catalyze and scale, catalyze and scale, with just the right dosage of policy enablement and regulatory protections.

In 2024 we will break ground on the foundation on which the next phase of startups will be built. One in which startups push effectively against our most calcified systems and complex problems from all corners of the earth. If that sounds a little bold, well, it is. If Im right, you can see why I am in the optimist camp in 2024.

Cait Brumme in the CEO of MassChallenge, the global network of innovators. MassChallenge has 15 years of experience connecting startups to the knowledge, networks, partnerships and capital that accelerate their success.  MassChallenge is a 501c3, headquartered in Boston, Massachusetts and a top three globally ranked accelerator.    

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