The Cortado team shares their predictions for the upcoming year, including where they see the most opportunity.
2022 was a unique year, not only for us at Cortado but for the venture capital space (and, at times, the world) as well. While there were plenty of challenges to tackle, we’re excited about the innovation and progress made over the past 12 months, both as an organization and in tandem with our portfolio companies. This year, we made exciting progress on Fund II and helped drive continued growth in enterprise technology companies including fintech, aerospace, life sciences, AI, energy technology, and logistics.
There are many milestones from the previous year to celebrate, yet our team is always looking forward to what’s next. Read on below for the full interview with Managing Partner Nathaniel Harding, General Partner Mike Moradi, and Principal Susan Moring, on what Cortado predicts for venture capital in this new year.
Q: What excites you the most about the future of VC in 2023?
Susan Moring: There are many exciting conditions shaping up in 2023 for us as investors: the quality of opportunities, the focus on fundamentals, the death of FOMO driving decisions based on trends, and the existential need for established corporations to adopt innovation to compete. But most of all, I’m excited to see a continued push for diversity among both investors and founders over the next year. Bringing new voices to the table helps us break ground and innovate more rapidly.
Mike Moradi: Severe market disruptions are the best time to start or grow tech-based companies. We don’t see this ending any time soon and believe that many companies started between 2020 and 2023 will become household names. I also echo Susan’s comments about diversity and inclusion, which have been vital to Cortado’s success.
Q: What trends are you anticipating continuing in 2023?
SM: A continued focus on companies with solid fundamentals — companies that, at first, may not be as sexy, or produce under the radar products that enable major industries, like manufacturing, logistics, etc., to work more efficiently.
MM: Talent is now more distributed than ever, and many people aren’t willing to return to higher-cost living on the coasts when they can work remotely. The targeted long-term investments that have been made by cities and states in the Midcontinent in the past few years will continue to bear fruit, especially in key industries such as aerospace, biotech, fintech, and energy tech.
Q: Any trends you see slowing down? Or any you hope will slow down?
Nathaniel Harding: In recent years we’ve seen funding rounds come together quickly, more frequently, and at higher valuations. This will not continue into 2023, and that’s a good thing. The mantra has been “grow at all costs,” and now is “grow at reasonable costs.”
MM: For trends I hope will slow down — due diligence processes that are too short, but also too long. I’ve been on the other side of the table as an entrepreneur, and there is nothing worse than a long and drawn-out due diligence process resulting in a “no.”
For trends I think will slow down, unfortunately, I think the IPO window has closed somewhat for now. The good news is it will open again, perhaps towards the end of 2023 or in early 2024. Since the creation of the biotech industry in the late 1970s, no downturn has lasted more than 24 months, and we’re arguably in month nine or 10 of this current downturn. I would imagine it’s the same for other tech industries.
SM: Investing on hype without doing proper diligence (ahem, FTX debacle).
Q: How will inflation or other economic factors affect portfolio companies, startups and investors in 2023?
SM: I think 2023 will be a weeding-out year for startups. Some may have a hard time surviving the year. On the flipside, companies with great fundamentals whose products generate value for their customers will have a chance to shine, which is something I’m excited about. Great talent will be more readily available for great companies as layoffs probably continue to happen.
MM: It will be a great year for M&A, though it’s a buyer’s market. If you’re running a startup and have profitable unit economics or a hot product/service, you may find multiple bidders with all-cash or mostly-cash offers. If not, you’ll either get stuck in a milestones and royalties deal with some up-front, or worse, an acqui-hire model that might return your investors’ capital or some portion thereof.
Q: What do you anticipate for the entrepreneurial ecosystem in the Midcontinent specifically this coming year?
NH: We hear more and more how established entrepreneurial ecosystems like San Francisco, New York City and Boston have stagnated. Alternatively, the center of gravity for new energy is in “domestic emerging markets” where there are announcements every week from new programs, organizations, startups and investors.
Entrepreneurs are builders who are attracted by the opportunity to join and shape a new frontier. In Oklahoma City, Tulsa, Dallas, and Northwest Arkansas, we see these network nodes connecting and you now have several options, for example, for organized capital at every stage. Things are happening more organically now, with so much talent and so many ideas that company creation and ecosystem events pop up at an exponential rate, overrunning gatekeepers.
Q: What else are you anticipating as the third wave of VC continues to gain momentum?
NH: The digitization of heavy industry will continue, as AI and machine learning are now becoming the required competitive edge for established companies. Corporate R&D dollars will struggle in a high interest rate environment, so these companies will increasingly look to adopt tech being proven out by startups.
At Cortado, we’ve already built partnerships with and invested in companies leading this type of innovation, across a range of industries. Drov technologies is disrupting the transportation industry with smart truck and trailer technology, improving both safety and efficiency. In the operations space, Ox is developing a first-of-its-kind system that empowers employees with automated technology. In energy, AI Driller is challenging the status quo and solving drilling problems with an all-in-one intelligence platform. Finally, oPRO.ai is leading exciting innovation for manufacturing — harnessing the power of artificial intelligence for smart factory automation.
While it’s impossible to predict the future with complete accuracy, we can shape it. We’re thankful for all of our team members and partners who worked with us in 2022, and we are looking forward to shaping 2023 together.
At Cortado Ventures, we’re backing a new generation of economic prosperity in the Midcontinent by investing in pre-seed and seed startups with a focus on energy, logistics, life sciences, and the future of work. If you are a Midcontinent startup or investor, contact us to learn more.