Predictions for 2024
IPOs, AI stays hot, and crypto makes a comeback
Hi all, Billy here.
With just days left in 2023, I asked the Upper90 investment team to reflect on what surprised them most in 2023 and what they are excited about in 2024. People are saying this is the golden age of private credit with banks in risk off mode and businesses having less access to equity capital; however there has been a large increase in private credit fund aum and smaller number of profitable startups that can take on debt. Bernard M. Baruch said “Now is always the hardest time to invest” which makes sense, a fund needs to have an advantage (size, cost of capital, flexibility) just like a company would.
We cover a lot below, going from AI to clean energy to Mexico to the NFL. Perhaps we’ll have a prize for those that are most accurate come the end of 2024. And the losers, well, maybe they’ll have to take the SAT like the losers of our fantasy football league did.
With all that said, in no particular order, here are our predictions for the new year.
William Geist: Lots of activity in AI, geopolitics remain a hot topic and a Swift prediction
The other William on our team had a lot to say. His first prediction was around banking. He believes that there will be increased capital requirements in 2024, causing a decline in risk assets. Less venture debt issuances or higher rates to maintain return on equity.
Next up, he believes that geopolitical conflicts are far from over and that this will lead to increased onshoring/nearshoring. Speaking of global news, he believes 10 more countries will announce plans to accept Bitcoin (BTC) as legal tender.
Third, AI will remain a hot topic. He believes we’ll see several large ($1b+) acquisitions in the space, and room for e-Commerce to hit a new stride boosted by AI driven enhancements in new product development, marketing, and lower shipping costs.
And perhaps the spiciest, Travis Kelce dumps Taylor Swift. Note who is dumping who…Swifties are about to cancel Bill.
Dallin Rosdahl: Volatility and more dealmaking
On top of the Fed shifting to a more dovish stance, Dallin predicts that public market volatility will increase as the election approaches. While he’s not making predictions on who wins the election, he believes a strong economy will be the biggest tailwind to a Biden second term.
On the venture side, he thinks dealmaking volume will finally pick-up, driven by impatient dry powder and stable/decreasing rates.
Trey Cobb: Bitcoin approaches new all time highs
Trey thinks 2024 will be a banner year for bitcoin. The reason? Most of BTC historical returns are accounted for in the periods following each halving and the next one is in 1H2024. Halvings should already be priced in and markets should become more efficient with time, so this rally may not be as big – who really knows. Wider global adoption in the wake of continued geopolitical conflict could potentially provide tailwinds in 2024. He notes that this is not financial advice, just a fun hypothesis and it could go to zero.
Additionally, he thinks more companies will struggle to service their legacy floating rate debt even if there are modest rate cuts in 2024.
Billy Libby: AI hardware boom, kicking the can on funding can’t continue, and bullish on Mexico
A surprise for me in 2023 was the demand for high-end AI hardware. I got a first hand look at it with one of our portfolio companies, Crusoe, and it’s amazing how quickly technology has been built and adopted for AI by the majority of companies. On the macro side, mid to late stage startups are having more difficulty raising capital versus new startups that have little to no revenue and execution risk. You can get better risk adjusted returns by solving a complicated capital need for a mature business while there is a frenzy to win early stage deals at higher relative valuations.
For 2024, I’m bullish on Mexico's e-commerce and supply chain industries, as we expect production to move there from China and the middle class to expand. On the capital side, investors have kicked the can on dealing with balance sheet issues. This can only happen for so long, and in my view, companies are not going to be able to reduce expenses or organically grow their way out of runway issues. I expect there to be more M&A, management buyouts and company restructurings in the next 12 months.
Drew Pelletier: Tech rally can’t stop won’t stop, but mortgages can
Drew doesn’t see an end in sight for the Nasdaq, which is up more than 40% in 2023. He believes tech-forward names will reap outsized benefits of AI and the index will end 2024 at all-time highs above 17,000 (it’s currently just above 15,000).
On the more pessimistic side, he predicts that mortgage delinquency rates will climb to 6%, the highest levels since the Great Financial Crisis. As a result, single and multi-unit homeowners would have to sell to willing corporate buyers and over a third of homeownership in the U.S. would be corporates.
Conor Witt: Neobank consolidation, B2B acquisitions, and Fintech IPOs
Investment bankers are going to be busy if Conor’s predictions hold true. He predicts that there will be consolidation and S-1 filings among both consumer and SMB neobanks. One name he predicts will do a deal is Chime, which he believes will make a large acquisition to enter more formally into the consumer credit market with credit cards or installment loans in preparation for an IPO announcement.
Neobanks aren’t the only ones hethinks will do deals. Conor believes more than one large scale $1B+ acquisition will take place in B2B payments from incumbent processors and merchant acquirers.
At the same time, he thinks there will be a pullback in supply of venture capital, meaning first funds wouldn’t raise second funds, and the oversupply of venture capital would revert to historic pre-Covid numbers. There could also be a select number of venture capital firm mergers in 2024.
Lastly, he predicts Chime won’t be the only company filing an S-1. He believes several late stage fintech, software, and financial services companies may do so as well, mentioning names like Stripe, Acrisure, Brex, Mercury, Deel, ServiceTitan.
Eric Traub: Regulators become more cleantech friendly
Eric focused on politics and the impact they can have on the energy sector. He believes a significant number of traditionally Republican states will follow Wyoming Governor Mark Gordan's lead, passing legislation to become more regulatory friendly to in-state cleantech innovation in an attempt to win battleground states in the 2024 election. As a result, he believes the energy/clean tech sector could experience the largest year-over-year funding increase among venture backed companies, with more land and resources to innovate.
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