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Why 2023 will be the best year to become a tech founder

Last year, $400bn was erased from the value of European tech. The number of mega-funding rounds fell, and there was a backwards step in terms of diversity. In all, Atomico’s annual State of European Tech report made for difficult reading.

However, whilst we expect this valuation and fundraising downturn to continue for the overall VC industry throughout 2023, I would argue that the year ahead will actually be the best time to become a new tech founder in the UK.

Following tech layoffs and redundancies, there will be an influx of highly skilled founder talent looking to create startups in 2023. We are already seeing this trend happen – at Antler we received more than 6,000 applications from aspiring founders over the last 12 months.

These are experienced tech professionals who have spent the last ten years operating in high-growth, scaleup environments. They are veterans of a decade of London’s tech success. Now that the party is coming to an end, they are looking to take that experience and build something for themselves and address pain points that are unique to a period of economic uncertainty.

And for the right startup, the capital is there. Life will be very difficult next year for later-stage companies and those looking to exit or secure unicorn status. But, as the funds that were raised before the recession still need to be deployed, investors will be looking to pre-seed and seed rounds as long-term investments that will weather the recession and have less volatile valuations for earlier-stage companies. Additionally, the UK government has further strengthened tax incentives for SIES investments that will provide further capital for qualified new startups.

Opportunities remain

Significant growth opportunities haven’t disappeared. We are seeing record levels of climate tech investments as world-class talent continues to gravitate towards innovations that will significantly improve energy efficiency and protect our planet. And far from disappearing, fintech is uniquely placed to serve customers facing new challenges as a result of the cost of living crisis and has headwinds with regulatory changes such as open banking. Entrepreneurs aren’t ignoring these emerging market demands, and investors won’t either.

The challenge founders will need to overcome is proving they have the right team and the right foundations. Getting initial traction can be more difficult in this economic environment for some sectors, but for other sectors this period poses a unique opportunity for hypergrowth through uniquely addressing real pains for businesses and consumers. A credible and quicker path to profitability will be more appealing than revenue growth to investors looking to back new ventures in the year ahead.

These are basic principles that every MBA student is taught. The problem is not that they are impossible to achieve, the problem is that after a decade of unprecedented growth, too often tech entrepreneurs and investors have forgotten them.

That’s why I am going into 2023 feeling optimistic about the future of UK tech. There is a unique combination of factors that can create a better quality, if not quantity, of startups than before. If the new, highly skilled talent entering the market can focus on the growth sectors set to define 2023 and build real businesses with real roadmaps to profitability then investors will support them.

Founders that can navigate that environment with the right support will be perfectly placed to build the next generation of unicorns that could define this decade of European tech. Expect great things from the companies yet to be created for 2023.

Jed Rose is a partner at Antler.

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