Are startups still operating in 'default alive' mode?

Question

Last year in May, YC sent an email[0] to its startups asking them to "plan for the worst" and try to be 'default alive' for 24 months. We took that advice seriously and drastically reduced our spend, which extended our runway at the expense of growth. I was wondering if other founders are still running their companies in 'economic uncertainty' mode, or things are relatively back to normal?Anecdotally, from talking to other founders in the Bay Area, it seems like early stage fundraising hasn't reduced as drastically as predicted, albeit at lower valuations.[0] https://techcrunch.com/2022/05/19/yc-advises-founders-to-plan-for-the-worst/

ttymck · Accepted Answer

Unfortunately I'm not in a position to provide an answer your question, but since we're here, I want to ask what you'll do with the information you get from the answers you receive. How will the responses here inform how you move forward?

fxtentacle · Answer

That strongly depends on your market, I would say. I haven't seen any reduction in funding in the AI market. But selling hobby supplies to consumers, for example, is now considered high risk.

ritzaco · Answer

I don't think things are back to "normal" (ie stupid high valuations and people throwing money at startups. In reality, I would argue that "plan for the worst" and try to be "default alive" is normal, and that it's the last 10 years that have been abnormal, but I digress..)
Interest rates are high, and there is a lot less money sloshing about looking for a home. AI startups are a thing, and people are still trying to make huge returns there, but I doubt this will last long.
The "real" money is in the series B,C,D companies that raised at unicorn level and above. They cut back a lot but I doubt many are 'default live', and we'll likely still see the impact over the next 1-3 years as they burn through their previous ($50M+) funding rounds. They still have cash in the bank and they are still burning it, but it's going to run out and they are not going to be able to raise the same amount again, and definitely not at the 'valuations' that they got.

amb23 · Answer

We're going to see a lot of smaller startups wind down by the end of the year: I know a few that have either wound down operations, or are in the process of an acqi-hire or asset sale to other firms. Anecdotally, I started hearing the numbers of startups in this position pick up significantly about a month ago (but I don't have a bird's eye view, I just pick up on industry news/gossip).The rest are default alive, but growing slowly. The rapidly scaling startup model is gone for the time being: no one is trying to double headcount or take over a market segment. (Some AI startups are an exception, but that market is nascent/unpredictable.) Default alive startups can be fodder for acquisitions from larger, established firms as well, if VCs are willing to take a cut on prior valuations. It's not clear to me where those VCs are going to find their 10x power law exits without the kind of growth and scale that used to be the norm; default alive is not a good outcome for investors.