State of Startups 2023 Edition
Welcome to our State of Startups report
Dear founder,
With the macroeconomic environment as volatile as it is, many of us are faced with tricky decisions about how to best run our businesses. In situations like this, I’ve always found the wisdom of the crowds useful. What are other people doing? What do their growth rates look like? How are they thinking about office space? How do we compare?
We thought it would be helpful to share some of that aggregate data, and so we present you Pilot’s State of Startups report, 2023 edition.
We surveyed founders from around the world, and here are our findings. I’m hoping you find it useful.
If you have any feedback on this report (or suggestions for next year), please get in touch!
Thanks,
Waseem Daher
Pilot CEO & Co-Founder
Overview
Startup Outlook
Despite operating in a tough economic environment, the majority of startup founders have a positive outlook on 2023. They expect 2023 revenue growth to be strong, and, broadly, they don’t expect to conduct layoffs or cut costs in any departments.
Time will tell whether or not this optimism is warranted.
“Winning formula is still the same: excellent team, huge space”
Seed Stage Founder, Southern California
Growth Outlook
Revenue Growth
Although founders are optimistic about their startups, most are less optimistic about 2023 revenue growth expectations. Median 2023 revenue growth expectations are less than half of that of 2022, with the median startup expecting to 2x revenue (vs. 4.9x in 2022).
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Headcount Growth
Unsurprisingly, founders are taking a much more conservative tack when it comes to headcount growth. 2023 headcount growth is expected to be about half of that of 2022, with the median startup only growing by ~30%.
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(ie: a 100 FTE company with 0.2x in headcount growth will add 20 people to their team)
Likelihood of Layoffs
Despite the headlines, our surveyed startups are not expecting to conduct layoffs. About 60% of companies feel that it's extremely unlikely that they will conduct layoffs this year. Smaller startups are less likely than mid-sized startups to consider layoffs. Specifically, startups with <10 FTEs are 34% less likely to consider layoffs this year than those with 11-50 full-time employees.
Industry best practice advises making layoffs large — to minimize the chance that you have to do them again.
However, in practice, founders are taking a more measured approach. About half of founders were instead considering more moderate reductions in their workforce.
If Conducting Layoffs, Percentage of Headcount That Would be Affected
“Growth is below plan / expectation, but path to profitability feels very attainable”
Series A Founder, San Francisco Bay Area
Fundraising Outlook
Runway
After years of a bull market with record-setting fundraising rounds and valuations, many of the surveyed startups are well-capitalized in 2023, with about half having more than 12 months of runway.
Of startups have over 12mo of runway
Of SF Bay Area startups have over 12mo of runway
Total Runway
Fundraising Recovery Expectations
The majority of founders are optimistic that the funding environment will recover within the next 24 months, with 75% expecting recovery by Q2 2024.
Although VC fundraising velocity and capital deployment has slowed, about half of startups remain optimistic that the fundraising environment will recover in time for their fundraise.
“We think an impending recession will narrow the herd, and give us more opportunity to execute our strategic plan, with less competitors in the field.”
Colorado-Based Startup Founder
Investment Areas
Areas to Cut Spending
Despite media coverage of companies significantly cutting back on spending, most startups have no plans to reduce their level of investment. Almost half of founders aren’t planning to cut back on spending at all.
Areas Startups Plan to Cut
Areas to Invest
In tougher macroeconomic times, most founders are going back to the basics and focusing on the main drivers of their businesses: sales, R&D, and marketing.
Founders are also focused around driving growth and profitability through streamlining operations and managing burn.
Priority Areas
“Chaos equals opportunity”
New York-Based Startup Founder
Other Helpful Benchmarks
Return to Office
The majority of startups have opted out of traditional office space, in favor of more flexible/remote working arrangements.
Do not have an office location
Of those with offices have required in-person days
Of Those With Office Locations, Number of Days Required in Office Per Week
Plans for Team Offsites
Team offsites continue to remain important due to an increasingly decentralized work environment. Approximately 60% of founders plan to host an offsite in 2023.
Founders are also focused around driving growth and profitability through streamlining operations and managing burn.
Thanks for reading!
We hope this report gives you a good sense of how your peers are approaching some of the decisions they are facing today and that it can serve as a useful guide as you face similar decisions.
If there’s anything we at Pilot can do to help out, please get in touch. We’re the largest startup-focused accounting firm in the US, and we have a robust CFO services practice area. The team is especially good at helping you think through tricky strategic questions, and we’d be happy to chat.
We’re rooting for you!
- What was your 2022 revenue/ARR, as a multiple of your 2021 revenue?
- What is your expectation for 2023 revenue / ARR as a multiple of 2022 revenue?
- How many employees did you have at the end of 2021?
- How many employees did you have at the end of 2022?
- How many employees do you expect to have at the end of 2023?
- How likely is it that you’ll have layoffs in 2023?
- If you’re contemplating layoffs, what percentage of your headcount will be affected?
- At your current revenue and burn rate, approximately how many months of runway do you have remaining?
- When do you expect funding conditions to recover again?
- Do you plan to raise additional funding in 2023?
- Do you plan to cut spending in the following areas in 2023?
- What’s your number one priority focus area in 2023?
- What’s your number two priority focus area in 2023?
- Do you require a certain number of mandatory in-office days per week? How many?
- How frequently do you plan to host a team offsite in 2023?
- How do you feel about your startup’s outlook in 2023?
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