Since the last SCOOP, the pace of venture investment across the market has slowed significantly; even still, we have no shortage of innovations to be excited about.

During times of uncertainty in the market, it’s common for many investors to respond by slowing their pace of investment — making fewer deals and cutting fewer checks as they wait for dust to settle. This doesn’t have to mean sitting idly. 

The ongoing economic uncertainty characterizing 2023 requires a solid disposition to navigate. Fortunately, we have history to guide us. Zooming out, it's clear we're at an inflection point in a years-long economic cycle — a moment of outsize opportunity. Rather than shying away from investing, we find it's most valuable to focus on our guiding light: technology will continue to be the most profitable and disruptive sector in the coming decades. As early-stage investors, we're deploying capital on 10 to 20-year time horizons, which allows us to maintain a long-term view and use these economic waves to our advantage.

The year's onset saw many startups resorting to bridge rounds, seeking the necessary capital to reach key milestones for their next raise while navigating a rocky market. Even well-positioned startups needed cash injections, so much so that 2023 bridge rounds have shed much of their usual negative connotations. The pricing of rounds favored early-stage investors this year, with multiples dropping and valuations experiencing a decrease.For founders seeking to raise institutional capital, investors had a higher appetite for startups doing "more with less." We saw startups strengthen lean operations and reduce burn. With our portfolio, we've continued to support their building out of scalable sales systems essential for establishing revenue flywheels and developing sustainable businesses. These efforts will pay off as the benchmarks for securing capital in later funding rounds have risen, with $1 million in annual recurring revenue (ARR) no longer being a sufficient benchmark in many cases.

Looking forward to next year, we anticipate that the broader startup market will continue to face economic headwinds. We're excited to make the most of this environment to pursue fundamentally sound companies led by the most capable founders, as we always have. At this moment, our experience in identifying these kinds of startups is particularly valuable. We'll deploy capital with confidence, even as we anticipate startup failures to continue. While it takes a bull market to fund many companies, there's always an appetite for strong businesses that can profit. On top of that, these necessary market dynamics are bringing about a return to reasonable valuations, making the coming year an optimal time to invest.

As mentioned above, we're seeing innovation remain vibrant in places like the Bay Area, New York, and beyond. We expect continued development of AI in the new year, and we're noting growing interest in Health and Defense Tech. Overall, 2024 will be a year for the books, and we're excited to see all that unfold.‍

‍Thank you for reading another edition of THE SCOOP; we value you as an important member of our community!

Sincerely,

Marc & Lauren

It should come as no surprise that one trend we’ve been tracking closely is the astonishing number of AI companies seeking funding lately. There’s no doubt that AI is a pivotal technology. To put it bluntly though, and as it has been in other cycles, there’s a ton of hype, but caution should be had. Many of the startups we’ve seen are products that could be short term winners, but will have difficulty competing at scale as many entrants are rushing to the space to solve similar problems. Figuring out how to build a moat around your product, create something that’s entirely novel and difficult to replicate, while competing with enterprise players, is the billion dollar challenge AI Founders are facing.

As investors, figuring out how to delineate between features and complete businesses is essential. The prevailing sentiment we hold emphasizes the importance of investing in robust businesses, with or without AI. While integrating this innovation is appealing, it should not be the sole selling point. It remains crucial to continually validate the fundamental aspects of any early stage deal by the problem it’s hoping to solve, the strength of the team, and the market opportunity.

When it comes to AI applications, there are several ways a company can create its own moat to fare with competition. One tactic is using proprietary datasets—leveraging the advantages of training on internal and private data versus external data as a competitive edge. Another way is through construction of their own models.  Both of these tactics are helpful in aiming to establish a distinctive performative advantage in the landscape difficult for competitors to recreate.

Ultimately, we believe AI will be great at augmenting the abilities of today’s workforce and 
are excited to source more opportunities that solve for the shortcomings we see today. 
We continue seeking out founders with the creative vision to put AI to use in uniquely valuable ways.

We're continuing to be bullish about investments within the healthcare industry. To date, 18% of MGV's portfolio falls into the health category, and our strategic bets have been faring well. Health is continuing to establish itself as a sector ripe for innovation and relevant in the minds of our population. Aging is top of mind for many investors, as one in six Americans is now 65 or older. We look forward to seeing more solutions to support the care, treatment, and the desire to age in place with a high quality of life.

With the release of the White House's Women's Health Initiative on Women's Health Research, we're seeing this evolving care landscape. The demand for differences in care between women and men will only grow.

The need to aid clinical and administrative burnout is increasing rapidly. The numbers around staffing shortages are not only shocking but also result in workflow inefficiencies, fiscal losses, and compromises in the quality of care for patients. To stay afloat, provider systems must adopt new software to strengthen their operations in the coming years.

The roles and responsibilities of developers continue to evolve, and 2024 will further this trend. As companies concentrate on running lean operations, the sizes of dev teams are impacted. More solutions that focus on empowering developers and supplementing their expertise will emerge.

Cybersecurity has historically been an afterthought, but with the growing number of cyber threats, data leaks, and privacy concerns, it's becoming a priority for workforces. Infrastructure to protect against exposure will be in high demand both for software being developed and to protect solutions facing unknown risks.