The Top Trends VCs are Tracking for 2023

From the future of work to web3, M13 partners share their top predictions for 2023.

By M13 Partnership

December 21, 2022


As we close out the year, M13 partners share industry trends and investment areas that we are tracking in 2023. Read on to see what some of our partners predict for 2023 including:

  • the road to recession and recovery
  • opportunities in changing markets
  • ways that web3 enable a consumer-friendly economy
  • our ambivalent to enthusiastic response to AI

Are investors on the road to recession or recovery?

There’s a fork in the road that will be difficult to predict: will we enter a recession or will the market begin its road to recovery with inflation under control?

Macro-economic conditions don’t directly impact our responsibilities as early-stage investors, but they generally affect the health of our portfolio and how we think about our commitments to new investment or focus on supporting our portfolio companies.

As an eternal optimist, I believe the market will begin its recovery which should open up later-stage investors and allow our existing portfolio to continue to thrive. As such, we look to new opportunities for investment to continue the growth of our portfolio.

A recovery should have a positive impact on the categories that have been most severely impacted in 2022, although not all. Markets like proptech, healthtech, and fintech should recover somewhat while web3 might suffer a longer impact from recent infractions in the category. The market will likely continue to look for businesses with healthy economics while maintaining a lower tolerance for risk.

Good businesses have often been born in these economic climates, and we’re excited to find unique opportunities for investment.

Changing markets will pave the way for new long-term opportunities.

As venture investors, we take the long view. We look for changing market conditions that are creating new long-term market opportunities.

  • Web3 is not a fad. It’s a new technological framework that enables decentralization, shared ownership, and anonymity. Centralizing economic activity may not be great for consumers—we want more control over our data and structures that concentrate ownership at the top create unequal societies. When fully expressed in new business models, web3 can be the foundation of a more consumer-friendly economy.
  • Sustainable commerce is mainstream. The circular economy is growing with demand from both brands and consumers for better solutions on returns, resale, and recycling. It’s happening now in fashion, and other sectors will follow.
  • The freelance workforce will continue to grow and thrive. As companies look to reduce operating costs, the freelance workforce will fill more roles including key strategic roles and management. Companies helping freelancers get paid, find work, keep up their skills, and create financial security will thrive.
  • AI is moving mainstream into productivity. Every new consumer AI application starts as a bit of a party trick with fun at-home applications, from voice assistants that place our grocery orders to generative art platforms that make cute dog pictures for our social media. We’ve now reached a tipping point: AI will be able to auto-schedule our meetings, write emails, and recommend people from our network. The challenge will be using new efficiencies to free up time for creative thought rather than just pack more in.

Macro impacts will drive the great build back.

2023 will be a year of building back up after the great reset of 2022, which was driven by significant macro factors, black swan events (in crypto), and a bull run that probably lasted a couple years too long.

In 2023, tourist investors will continue to retreat from the late-stage growth markets—this will require us to work a little harder for our companies as they continue to scale. Reaching a unicorn valuation will once again become a significant milestone for early-stage companies, and we’ll see significant M&A activity as corporates become more opportunistic and VCs look to return capital.

Tourist investors will retreat from web3, which will stay flat to down over the course of the year. As contagion risk dissipates and better regulation is put in place, there will be generational opportunities to invest in open-sourced protocols and the applications built on top of them. We’ll start to see real utility crowd out speculation—a necessary prerequisite given the low levels of liquidity in the market.

Rob Olson

Partner and Head of Data Strategy

AI and human behavior: Our relationship with what's real is changing.

We think of reality as hard science (rules) combined with space and the passage of time. Because of generative AI, the word “real” is now permanently divorced from its historical anchoring in the tangible, object-based world. That reality will be home to a mixed population: genetically-programmed humans and digitally-programmed protocols, each able to learn, create, and perhaps teach.

With these advancements, we’ll challenge standard protocols when it comes to data: how we measure and optimize products, assess performance, or determine success. On the optimization side, generative AI will fuel the inputs to completely reimagine the concept of “A/B testing.”

Before, we were constrained to “testing all combinations of X, Y, and Z.” Now we’ll have the ability to test entirely new creations that are by definition novel and not just permutations of human-defined inputs. But all optimizations need a target outcome: what are we solving for, and what are we maximizing or minimizing?

Generative AI will force us to rethink success since it powers:

  • gains in efficiency: write it for me
  • creative breadth: say this differently
  • personalization: show them what they want
Do we begin to stray from uniform products and experiences into a long tail of hyper specific, uniquely engineered ones? As these products become intertwined and start sharing data and learning from each other, there will be a new world of challenges trying to separate behavioral data into “human behavior” and “AI behavior.” As the two feed off each other, influence each other, and teach each other, we may be forced to concede that the two have become one.

Lizzie Francis

Partner and Head of Operations

2023 will be the year of sustainable commerce.

Our unpredictable economy and upcoming election year are a recipe for uncertainty. In times like these, founders often cut non-profit driving initiatives. But in moments of constraint like these, we often see innovation thrive. Specifically, we’ll see innovation in commerce sustainability gain step-change and momentum in 2023.

Founders will build and invest in infrastructure—technological or operational—that’s sustainability first. Brands will be transparent around their sustainability initiatives, creating new norms for supply chain and origination, re-imagining physical experience, and engaging consumers in conversation around sustainability as core to their brand value proposition.

This convergence of brand and sustainability is a tipping point, not just a promise, and 2023 will be a transformational year for commerce.

Matt Hoffman

Partner and Head of Talent

Successful companies will support new ways of working.

It certainly seems like the “balance of power” is shifting back from employees to employers, and with that comes the apparent opportunity to demand more from workers. But the truth is work is far from a zero-sum game, and the best companies know that they win when everyone is performing to their highest potential.. The companies that will lead the future will use the new paradigm to their advantage, finding new ways to attract the best talent with cultures that are collaborative, supportive and healthy and the current environment will provide the most innovative companies a real opportunity to differentiate themselves in the talent marketplace.

Not every problem can be solved with more money or more hiring. Every employee is even more valuable to a startup’s success. What does that mean for leaders?

  • hire the right people for the right roles
  • give regular coaching and developmental feedback so employees can perform at their highest potential
  • drive healthy engagement so that teams are excited about the mission and willing to do what it takes to achieve it
Companies that are poised for success support new ways of working and help define what “work'' is, what good performance looks like, and how to capture and measure it.

Brian Carroll

Partner and Head of Finance

Startup CFOs will prioritize profitability over growth.

As startup CFOs build budgets that nudge the tradeoff needle more toward profitability than growth, we'll see more conservative market moves from startups, including reduced ad spend, raised bars for hiring, cautious geographic expansion, and less M&A. Spending focus will shift to value and away from speed, and we'll continue to see longer fundraising cycles and deeper due diligence.

Other trends to watch:

  • Vietnam and other Southeast Asian countries will pick up manufacturing and high-tech outsourcing.
  • More international digital nomad co-working and co-living communities will pop up as remote work becomes mainstream and providers like Deel facilitate international hiring.
  • Interest in generative AI will grow as gated beta access technologies admit more developers. Consumer apps like starryai will find new ways to monetize consumer interest, and B2B startups will embed the tech into old workflows.
  • Synthetic biology will start to pick up speed after Deepmind's Alphafold library opens up protein structures to all.

We share predictions to spark conversation and connect with founders and investors who can deepen our overall understanding. In turn, we provide opportunities to digest and discuss those insights with our community.

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