A new era is coming, and it will be better

We have experienced the last decade where, thanks to quantitative easing (printing unbacked money), the market was flooded with cheap capital. Nothing seemed to be a problem, everything kept growing, and everyone thought it would last forever. Seemingly, we believed everything would just rise, everyone would make money, and be happy. Although happiness was often far away. But we were wrong. Gradually, we are waking up from this dream, as the aforementioned printing of unbacked money created pressures that led to extreme inflation. Given the enormous amount of money flooded worldwide, we can say with certainty that everything has a beginning and an end. And so, in 2022, we are awakening to the end of one era and the beginning of another. Inflation, which will eat away at our cash reserves, will affect everyone.

These pressures will naturally impact the category of newly emerging innovative companies—startups. In recent years, we have seen a huge number of organizations, whether VCs or banks, blindly investing in anything labeled a startup. Today, we wake up to a new reality where investors want to know how and when a startup will become profitable—not just its popularity on social media or awards that do not guarantee business success. It’s no secret that reckless investing led many VCs to lose large sums of money. There are enough well-known failures over the past five years to serve as examples. Many of these startups didn’t even have the basic prerequisites to be called startups. Yet that didn’t stop huge funds from pouring in massive amounts of money during their then breathtaking growth. Their collapse before IPO (as in the case of “WeWork”) revealed their true profitability.

Today, charismatic founders—often passionate entrepreneurs—persuade investors to invest. However, many times behind them stand people with little knowledge of economics or business. Common sense got lost chasing the dream of big profits and success. The simple math of “1 + 1 = 2” stopped working. Greed overtook all other qualities that signal what is right and what is not. And this is the foundation of business and success.

We lived in an exaggerated time. Startups, at their core, should help people in their activities, whether for fun or work, and potentially improve the environment. Such companies can still expect access to VC funding in the future.

I believe we have entered an era of high interest rates that will impact startup investments and simultaneously reduce the inflow of money overall. There will be greater focus on how commercially a startup can succeed. It will no longer be possible to support startups that do not generate profits over 7–10 years or more.

Consequently, many startups will see their flow of cheap capital dry up and will face existential problems that will cause some to cease operations.

The capital environment will return to its essence, and we will again live in a time when we build logically functioning companies whose goal is to grow capital and generate profit.

A key direction we see for the near future, alongside well-known trends of recent years, will be a focus on ecology, reducing CO2 emissions, and ESG (Environmental, Social, and Governance).

Generations of young people expect the arrival of such technologies. They live and breathe this expectation; their needs form the foundation of the future startup society. In other words, the most important thing for a startup is addressing a real need with inventions that society demands and is willing to invest in.

I look forward to this era when society changes its course and we witness new technologies supporting a healthier environment and society.

Article by: Vladimír Orth

Tags: wanderercapital , startup , vladimirorth , inovacie , financovanie , inflacia , stagflacia , eranovychspolocnosti , zakladaniespolocnosti , vc , venturecapital , angelinvetor , anjelskeinvesticie