Mid-to-late stage tech startups will likely face a reckoning in late 2023 to 2024, as companies run out of cash from “free rounds” fueled by low interest rates
The coming reset in mid-to-late stage startups in 2023-2024 is at this point likely largely decoupled from interest rates and inflation.
Elad BlogElad Gil
Context & Ripple Effects
Elad Gil's argument lands at the end of an arc our coverage has tracked for over a year: after venture firms began cutting back and renegotiating deals amid poor IPO performance in early 2022, mid-2022 still showed record average deal sizes, meaning plenty of companies raised on momentum rather than fundamentals. His claim is that those 'free rounds' bought roughly 18–24 months of runway, so the reckoning is now decoupled from rates — it is simply when the money runs out.
Mid-to-late-stage startups that priced off 2020–21 momentum hit their cash-out date in late 2023–2024 with no easy extension, forcing down rounds, cuts, or shutdowns regardless of where interest rates sit.
Investors who passed on resetting valuations in 2022 — while deal sizes were still setting records — now hold positions marked well above any achievable next round price.
Second-order effects
Companies facing the squeeze pivot toward revenue-generating products over speculative bets, accelerating the shift already visible when [[a:984328|tech firms began trading 'gee-whiz' projects like self-driving cars for products that actually make money]].
Down rounds compress the valuation ladder for everyone behind them: earlier-stage investors face dilution, and employees holding rich strike prices find options underwater, pressuring retention at precisely the wrong moment.
Third-order effects
If the pattern holds, the era of broadly distributed unicorn marks gives way to concentrated capital: funds back fewer, proven cash-generative companies rather than spraying term sheets, undoing the 2016-era drift Gil flagged when VCs increasingly backed businesses that weren't software-driven.
A cohort-wide repricing resets founder and LP expectations for years — future rounds get underwritten on unit economics and runway math rather than rate-fueled multiples, making 'free rounds' structurally unlikely to return even if rates fall.
The trend: Venture capital is moving from rate-subsidized, momentum-priced rounds to a fundamentals-driven market where runway exhaustion, not macro conditions, forces the reset of overvalued mid-to-late-stage startups.
Important post... Capital efficiency has never been MORE important. COSS as a result will see more interest and activity than since the founding of Red Hat 30 years ago (as of March 26th, 2023). https://twitter.com/...
“It is good to remember in periods of pain that pain is temporary, that technology is a massive wave of change and global economic empowerment, and that many future opportunities are yet to come.” Analyzing the coming reset in mid-to-late stage startups https://blog.eladgil.com/.…
TheReckoning by @EladGil short story: altho public markets re-set a year ago, in private markets we have not really seen an equivalent re-set for many/most startups that haven't had to do a down-round (yet). expect that to change *dramatically* in the next 6-18 months, as... http…
This post is the single best look at what is still going to happen to the startup world over the next year. And why the pain hasn't all been experienced yet. Most important is the reminder to be good to each other - not a zero sum game https://twitter.com/...
Great post from @eladgil. And fwiw: MOST ceos have not internalized these numbers I post below. And some are praying the AI hype of 2023 will save them. https://twitter.com/... https://twitter.com/...
“It is worth noting that roughly every public company (Snowflake, Shopify, Airbnb, etc) just survived a massive “down round” in the public markets - as their stocks dropped 50-90%. ... and yet these companies work just fine.” thx @eladgil https://open.substack.com/...
The only caveat I'd add is that in the current regulatory environment, M&A may not be a real option for a growth-stage startup. The only safe path is to try and get default alive. https://tomtunguz.com/...
To all the founders asking me why they can't raise at a higher valuation despite growing 5x since the last raise read this piece from @eladgil https://twitter.com/...
Been spending a lot of time talking to early stage founders around multiple compression and why there's still more pain to come on valuations + expectations Now just going to send this post by @eladgil as valuations still have long way down to the “reset”... https://twitter.com/.…
Sobering but great post by @eladgil. Still a lot of dry VC powder from the last fundraise cycle, but we're likely finally hitting the funding crunch we thought would happen start of covid https://twitter.com/...
Handy graphic from @eladgil showing how cash is steadily running out for the overpriced class of 2021 tech startups, who can't raise money at prior prices. Epic mess ahead. #xp https://twitter.com/...
Clear-eyed view of what's happened and what will happen in private markets over the next couple years. 1) More startups than usual will go under 2) Fewer M&A exits due to budget crunches, layoffs, and regulatory scrutiny 3 Most startups will never surpass their 2021 valuation htt…
Very important read. Especially for those still thinking “we just need to survive until things return to normal.” No. This is normal. Plan accordingly. https://twitter.com/...
This is a great post and a must read for both growth and early stage founders. Many startups that cut burn last year and extended runway are going to be in an unfortunately tough spot in the next 12-18 months. Can't hide from it so must face head on. https://twitter.com/...
.@eladgil's excellent post on #startup decoupling. https://blog.eladgil.com/... Still marvel at how much flak I took b/c the frothy 20s made no sustainable sense to me. Reminded of a lesson my brother learned at $MSFT. Focus on a) building proprietary assets b) get to critical ma…
“A company that raised at 50X ARR will take 9 years growing 20% a year to grow to flat with its current valuation (assuming at 10X exit multiple).” https://blog.eladgil.com/...
Pls grok Elad's point I agree: https://hunterwalk.com/... If your exec team & investors aren't in sync on the next 12-24 months, gotta have those conversations https://twitter.com/...
Great post from @eladgil “Many companies that raised in the hey day of 2021 are currently worth the most they will ever be worth over all time.” This is absolutely true. 2021 is likely to be the worst vintage ever for venture and growth equity. https://blog.eladgil.com/...
As things get worse, incentives of founders, employees, investors may split Choice will need to be made on -shut down or not (early investors will want you to keep going, late maybe not) -M&A (fewer buyers over time) -Re-set valuation or not More here https://blog.eladgil.com/...