SaaS businesses grew in 2023, but they did so at a much slower rate than the years of pandemic hypergrowth. At the same time, revenue growth was down and churn rates were at an all-time high, reflecting a period of “normalization” post-pandemic due to rising interest rates and enterprises cutting down on their software expenditures.

After a year characterized by slowdowns and cutbacks, our analysis of real-time subscriptions data from more than 34,000 software companies in Q1 2024 shows that the SaaS market has started the year on a more positive note, with growth coming back, churn slowing down, and businesses adapting to the new realities of a recalibrated software market.

Those findings are from the most recent SaaS metrics report by my company, Paddle, which is a payments infrastructure provider for software companies. Using an anonymized aggregate of data from the SaaS companies that use our ProfitWell Metrics tool, we’re able to see trends for the industry around key metrics such as growth and churn.

Signs of improved health

Drawing on our data from Q1 2024, we’ve noticed signs of improved health in SaaS.

There’s been a resurgence in B2C software growth in particular, with CAGR at 6.3% in Q1 — double that in Q4 2023 and the best quarter since Q1 2022.

A consistent uptick in new sales activity in the B2C market since the end of 2023 has contributed to this, as well as a 17.5% spike in subscription upgrades in February alone.

This bodes well for the B2B sector, as growth in consumer revenue is often a leading indicator of future growth in enterprise revenue.

New sales for B2B SaaS companies have also dramatically improved, up 20% from December’s two-year low point.

Taking a quarterly view of new sales, the averages for B2B are still down on the last few high-growth years (2021 and 2022) but are up 40% on pre-pandemic performance (2019) — further evidence of market reconciliation as it settles on a lower level.

(For this graphic, a 1.00 reading represents sales on an “average” day in 2019, while a 1.10 reading would be 10% higher sales.)

B2B software leaders adapt to the ‘new normal’

Notably, amid these early signs of improved sales and revenue growth, B2B customer churn has fallen to an 18-month low, improving 14% since December and down 12% from where it was a year ago.

This has come amid an uptick in upgrades and downgrades from companies moving customers to different tiers or subscription plans to keep them from churning.

This suggests B2B SaaS companies are, wisely, actively looking to combat churn and drive more revenue from their existing customers.

Reining in these high levels of churn and focusing on retention and expansion underscores a concerted effort within the sector to fortify relationships with, and continue to deliver value to, their existing customers, something that is much more valuable in a low-growth environment.

Strategies to thrive as the SaaS market resets

As the market goes through this recalibration, there are a number of strategies that SaaS companies should employ to ensure they continue scaling sustainably.

Balance product-led and sales-led growth

In a more difficult selling environment, merging product-led growth and sales-led growth is an obvious option for SaaS founders. Very few companies will be able to scale by relying solely on one or the other.

For those businesses with a strong PLG offering, layering on a sales-led approach means product teams can provide sales with product usage data to bring on target accounts at an enterprise level and win long-term customers.

For those who have a largely SLG motion, opening a product up with PLG widens your total addressable market. Crucially, it also forces you to create a product experience that sells itself. More people using the product drives greater adoption and more opportunities to bring in the sales team at the right time.

Successfully merging these two motions leads to a more efficient overall sales function where expansion and retention are built in.

Experiment with new growth channels

To continue growing, companies need to find ways to increase efficiency while decreasing costs. A growing trend in the mobile app space, for instance, has been to unlock growth by driving customers to complete purchases outside of the traditional app stores.

There are benefits to selling through an app store but it comes at a cost. Most levy a hefty 30% commission on sales and force businesses to follow specific frameworks when engaging with customers that restrain flexibility and revenue generation capacity.

To mitigate this, many companies are now pushing in-app customers to transact via their websites instead to recoup lost revenue and accelerate growth. Done well, the benefits of this can be vast, including access to a bigger customer base, greater flexibility and customer insights, and more control over the sales and marketing experience.

Build strong foundations for international sales

One growth strategy that no SaaS company should overlook is the opportunity to sell globally. Growth has slowed in traditional major markets like the U.S., Canada and the U.K., but markets in Europe, Australia and New Zealand continue to grow significantly.

To successfully scale in international markets, SaaS companies need to ensure they’ve done their due diligence and have the capabilities to clear potential hurdles like international payments acceptance, tax compliance, supporting different currencies and languages, and minimizing FX fees.

Reasons for optimism in 2024

After several challenging years, there are early signs of encouragement for SaaS in 2024.

While both B2B and B2C trends might change in the months ahead, the increased focus among SaaS businesses on combating churn and delivering value to existing customers suggests founders are adapting well to the “new normal” in SaaS.

Combining these good habits of pursuing efficient and more sustainable growth with the strategies outlined above will give SaaS businesses a great chance of having a successful year ahead.

Jimmy Fitzgerald is CEO of Paddle, a payments infrastructure provider for SaaS businesses, powering hyper-scale growth across acquisition, renewals and expansion. A SaaS veteran, Fitzgerald has spent more than two decades growing ambitious technology companies.

Illustration: Dom Guzman

Startup founders often wonder (and fear) when their growth will slow down and eventually plateau.

Especially in the early days of achieving product-market fit, the hustle and rapid growth often lead founders to overlook certain crucial metrics that ultimately determine the growth limit of the company.

In biology and engineering, there is a concept called “carrying capacity,” which is usually a measure of a terminal value of some capacity, such as population growth or the volume of water in a lake.

For example, in the graph above, assuming steady reproduction and influx of population along with a steady rate of death, the population of a city will initially grow slowly, then go through a period of rapid growth, eventually tapering off around the carrying capacity and reaching a stable equilibrium.

When the influx and outflux are relatively steady, the carrying capacity becomes a fixed number, asymptoting toward a terminal value.

We only need to know two numbers to calculate the terminal value of a system: the absolute influx amount and the percentage of outflux over the same period of time.

Using this simple formula, we can easily calculate the terminal ARR for your startup.

So, what is terminal ARR?

Terminal ARR represents the equilibrium point of your annual recurring revenue, where the amount of new ARR added each year equals the ARR lost due to churn and downsell.

It is the maximum revenue your startup is expected to stabilize at, given current growth strategies and customer retention. This metric is important for understanding when your business will reach a revenue plateau and for planning beyond that point.

Calculating terminal ARR: A simple formula

You can calculate terminal ARR using just two numbers: your gross new ARR per year and your gross revenue retention rate. Using your gross revenue retention rate, you can calculate your churn and downsell percentage.

Using this number, find the terminal ARR by applying the carrying capacity formula.

EXAMPLE:

Imagine your startup is projecting to add $1 million in new ARR each year, and your revenue retention rate is 90% (or 0.90).

Under current conditions, your business will eventually stabilize at an ARR of $10 million. However, if your retention falls to 80%, your terminal ARR drops to just $5 million.

This is why many investors focus on the revenue retention rate for startups (also known as the “leaky bucket problem”), as the sensitivity to revenue retention is quite high when it comes to calculating your terminal ARR.

Strategic implications

By understanding your terminal ARR and the underlying input metrics — gross new ARR and gross revenue retention — you can set priorities to improve or structurally change the business.

To influence your terminal ARR, you only need to change one of two metrics: gross new ARR or gross revenue retention. This helps you crystallize your priorities.

By focusing on higher-quality customers and deploying rigorous customer retention programs, you can gradually increase your revenue retention. However, given that revenue retention is measured over a year-long period, it will take a good 12 months of lead time for your initiatives to impact the outcome.

Having a long-term view and perseverance to push through your customer retention strategy is key.

Increasing your gross new ARR has more to do with your fundamental value proposition/product, marketing and sales strategies, as well as overall funnel velocity (e.g., sales cycles). Unless you are selling to Fortune 100 or traditional enterprises, it is likely to be shorter than 12 months, so having a robust new and upsell revenue growth strategy can impact the terminal ARR a bit faster.

It’s crucial to continue paying attention to both input metrics to ensure you are maximizing the terminal ARR of your startup. How the combination of gross revenue retention and gross new ARR impacts the Terminal ARR of a company is shown below.

In the example, even with the same gross new ARR, based on the retention, the terminal ARR can have a 4x difference.

As you understand your own business and discover which metric is easier to move, you will have to set your priorities and strategies — all of your product and go-to-market efforts will directly impact these numbers — and your growth potential.

John S. Kim is co-founder and CEO of Sendbird, a communications platform for web and mobile apps. He is also the general partner at Valon Capital, an early-stage venture capital firm focused on B2B, SaaS, AI and deep tech. Earlier in his career, he started Paprika Lab, a social gaming company, which was acquired by Gree.

Illustration: Dom Guzman

From a consumer perspective, there’s never been a worse time to be online. I’m far from the first to write about this — it’s a phenomenon dubbed “Enshittification” by Cory Doctorow and written about at length by folks like Ed Zitron and others.

The premise is simple. The quality of your experience as an internet user relies on user-generated content, or UGC. Whether you’re looking for information, entertainment or something in the middle, the vast bulk of content you’ll engage with is created by someone else, for free.

What drives people to create online? In the early days of the internet, it was — basically — for bragging rights, and because they could. Forum posting was an exercise in creativity and humor. The incentive structure, for the most part, worked — and you still see companies trying to create that (e.g., Reddit, where karma is currency).

The only constant

Why did this change? We realized that a captive audience is a good audience to advertise to. “Eyeball time” became an incredibly valuable commodity. We built walled gardens so we could more effectively manage communities to advertise to. Your identity online became that of a consumer, not a user.

Today, people spend their time in walled gardens — consuming content that the algorithm predicts will keep them online, interspersed with ads. Quality UGC is harder to come by. (Accounts like @dieworkwear on Twitter/X are the exception, not the norm.)

Recipes are SEO-bait, most reviews feel like some type of influencer marketing, and we’re all worse off for it.

And the prevailing sentiment is that the experience of being online is about to get a lot worse, really quickly.

Why? Generative AI has made content creation essentially free. Trained on enormous datasets — much of the internet, i.e., UGC — large language models can write and rewrite new versions of whatever we want them to.

Marketers are — as they should — using these tools to create content that furthers their brand goals. Search engines and walled gardens will ingest and regurgitate it. It’s an ouroboros, and we’re living in it.

Doing it right

There is, however, a bright silver lining to this dark cloud. LLMs are extremely good at constructing content based on the data they can access. What if we lowered the bar for people to create high-quality, socially valuable content, and used LLMs to serve that to people?

Take, for example, the grilled cheese sandwich. There are hundreds of variations of grilled cheese recipes online. If you ask an LLM to give you a grilled cheese sandwich recipe, it’ll write a statistically representative version from its dataset.

But do we want LLMs to help us create the median grilled cheese? Or do we want to inject the nuances of an experienced chefs’ intuition — e.g., how to get a Maillard reaction in the bread — into LLMs’ information diets so that we can raise the bar for a quick weeknight meal?

How often does our online content tell us what to do without explaining why we should do it? If we want a better internet, we should encourage a Chesterton’s fence lens to content creation (tl;dr, understand root causes before you act).

This will require a new business model. We need to encourage more proactive roles online than simply being internet consumers. It’s what we have to do if we want a better internet.

That’s what we’re doing at GetWhys, where we’ve built up a community of business decision-makers who are sharing valuable information that doesn’t exist online (for example, B2B software pricing, or how to build a channel motion with a GSI), and using LLMs to serve those answers back to people who need it. There are certainly other use cases.

Walled gardens might be an inevitable byproduct of a better internet. But it’s on us to make sure the content they serve is high-quality — not sh*t.

Philippe Boutros is the co-founder CEO of GetWhys, which he founded to solve problems he experienced firsthand as head of marketing at Transform Data, a startup acquired by dbt Labs. Before wearing that hat, he spent 7.5 years as a consultant to B2B technology companies, using market research to help companies from Amazon to Zendesk build, market and sell. Boutros has a bachelor’s degree in philosophy from the University of Portland and is fluent in Arabic, French and English.

Illustration: Dom Guzman

Despite some revitalization in the investment landscape in Q1 2024, securing investments, especially at the very early stages, remains challenging.

That said, there is a growing category of investors that is still not considered by many founders as a potential source of funding — retail investors.

By this, I mean nonaccredited investors who face many restrictions when investing in startups but are often ready to fund projects they find interesting.

However, attracting money from retail investors has its peculiarities.

Competing with the public markets

First, retail investors have many public market opportunities, which is not always an advantage for founders.

Fintech progress has expanded opportunities for investors. Furthermore, the rise of robo-advising and analytics platforms provides them with ongoing advice regarding where to invest, how to do it, and why.

The challenge? Retail investors now have an abundance of information that creates overload and confusion, making it difficult to identify value opportunities. As a founder, the likelihood that they will choose your startup is not very high, so you will have to be very convincing for them to choose you

Limited tools

Second, if retailer investors choose to invest in startups, the tools to do so are still limited.

Investment platforms such as Republic and Wefunder or crowdfunding platforms like Kickstarter or Indiegogo are well known and generally the first and most popular option.

However, more experienced investors know that these host the highest-risk investment categories and rarely feature more mature companies. Venture capital trusts are another alternative, although, as of now, they only exist as a legal vehicle in the United Kingdom.

Additionally, a relatively new option is tokenization. Although many retail investors, as well as founders, might not be familiar with it, tokenization holds significant potential, since retail investors’ investment in digital assets is not particularly restricted. Therefore, you can digitize shares in your company using a blockchain protocol and offer them as tokens.

Regulatory and other limitations abound

Attracting retail investors to a private company has its limitations.

Legislation usually protects retail investors from risky investments such as startups. While developed markets such as the United States, Europe and Israel are moving toward expanding opportunities, a radical change in restrictions is not expected in the near future.

The second limitation is the check size. Under present regulations, you can raise no more than 5 million USD or EUR through a crowdfunding platform. If you have a late-stage or capital-intensive startup, this is not a suitable option.

Retail investors seek a narrative

Venture capitalists are emphasizing numbers more than ever, in addition to requiring a working minimum viable product, a refined business model, a low burn rate, and good traction.

Conversely, retail investors often pay attention to a compelling story.

Therefore, be prepared to appeal not only to their minds but also to their hearts, and most importantly, diversify your agenda — people are different and will make decisions based on their values.

This is particularly relevant for Generation Z, which is gradually becoming an active part of the business community. Hence, work on your company’s image and emotional appeal.

Final thoughts

Amid a challenging venture capital landscape, retail investors offer a yet-untapped potential pool of capital, and leveraging it could transform how startups fundraise.

Nevertheless, important attention needs to be paid to all the particularities of the retail segment. Unlike conventional VCs or angels — who invest in startups as a profession — retail investors have other factors that influence their decision-making.

Additionally, expectations must be reasonable. It is near to impossible that a single retail investor will match the check of a VC. By understanding its characteristics, you can boost your fundraising prospects.

Mila Khrapchenko is the co-founder and co-CEO of Ameetee, a fintech startup that provides a B2B solution for investing in private companies through transferable securities. She is an investment professional with more than 20 years of experience, managing a portfolio of approximately $2 billion, and an angel investor involved in more than 30 deals.

Earlier this year, the Securities and Exchange Commission approved a climate-related disclosure rule for U.S. public companies. The rule, which is currently being challenged in a federal court, marks the first time that American companies would be required to disclose some form of greenhouse gas emissions.

It does not, however, require reporting on indirect emissions that occur in the value chain of a reporting company. These emissions are the hardest to track and can account for more than 70% of a company’s carbon footprint.

If public companies might get off the hook for the majority of reporting, why should a capital-efficient startup consider the time-consuming and expensive process?

The practical reasons

By 2026, a California-based company with more than $1 billion in annual revenue must report direct GHG emissions (for example, fuel to power a company’s equipment), indirect greenhouse gas emissions (such as consumed electricity generated offsite), and by 2027 value chain emissions — the aforementioned category that can include everything from purchased goods and services to leased assets to delivery trucks. The state’s law is currently more progressive than the SEC and closer to EU regulations.

California includes a long, notable list of companies that could be future customers, partners or acquirers for a startup. Now consider the growing number of corporations that are already voluntarily measuring, disclosing and reducing greenhouse gas emissions downstream in their supply chains.

Collectively, that’s a lot of entities that are evaluating their purchased products and services and searching for lower-carbon alternatives. A startup that is already reporting, or at least demonstrating progress will be a more attractive partner.

Additional arguments for startups to voluntarily start measuring sustainability efforts become a bit squishier. Every founder I know has a focused “must do” list and a much longer “should do” list. It takes a compelling argument to shuffle priorities around, particularly when it requires extensive funds, talent and time — not to mention a hard-to-define return on investment.

That said, here are some of the softer reasons a startup should measure greenhouse gas emissions: to establish loyalty with consumers, to build public trust, and to create a purpose-driven culture.

Where to start

It’s not a linear path. And for many startups facing financial realism, it requires a scrappy approach. The ultimate goal is to better understand a company’s holistic environmental impact in order to identify opportunities for improvement.

There are a number of widely used and accepted standards, such as the Greenhouse Gas Protocol, that offer a methodology and reporting framework for companies to measure, manage and report on their emissions. A startup offering a product might also start with a life cycle assessment to estimate cradle-to-grave environmental impact including raw material and processing, manufacturing, distribution, use and end of life.

This is a company-wide undertaking that will likely require buy-in, budget and talent. There are a number of sustainability management resources to choose from including free online platforms. Carbon accounting software can cost $50,000 to $70,000 a year, and require consultants to help implement.

While expensive, an outside service provider helps to remove internal bias and increase credibility. Some of these options might offer more capabilities than your team is currently set up to unlock. It’s important to do a careful and honest assessment of what’s feasible for your company’s stage of growth.

After developing a more complete picture of greenhouse gas emissions, a company can start benchmarking practices among competitors, setting long-term goals, and considering energy-efficient changes. Startups should lean on their boards to pressure-test findings and review draft roadmaps.

Even if it’s early days to measure your company’s carbon footprint, you should be discussing the right time to start.

Todd Klein is a partner at Revolution Growth, a Washington, D.C.-based venture capital fund that backs category-defining companies operating at the intersection of policy and tech. During his 20-year career, Klein has been involved in financing and building more than 150 growth-stage companies in the media, consumer, tech, sustainability and healthcare sectors.

Illustration: Dom Guzman

As global startup funding experiences a downturn, with Q1 2024 marking one of the lowest points since 2018, the landscape for entrepreneurs seeking investment has become increasingly challenging.

In these uncertain times, investors are placing greater emphasis on startups that offer tangible solutions to pressing societal and environmental issues. As a result, sustainable startups in this climate have a unique opportunity to shine by aligning their missions with the growing demand for impactful investments.

That said, standing out from the competition requires more than just a noble cause. Founders must carefully consider what sets their venture apart and how they can effectively communicate their value proposition to impact investors.

Let’s go over the key factors that stand to attract investment in sustainable startups and lead to success.

What are impact investors looking for?

Startups that can demonstrate a strong alignment between financial viability and positive social or environmental effects are in great demand in today’s investment landscape.

To appeal to investors, projects must clearly articulate their objectives, showcasing how the two aspects (financial and environmental) are interconnected in their operations. By presenting a compelling narrative that highlights the potential for both financial returns and positive social or environmental change, startups can effectively capture the attention of impact investors.

Taking this logic a step further, participating in impact-focused grants and accelerators can provide startups with not only much-needed capital but also increased credibility within the impact investing community.

Such platforms offer valuable opportunities to showcase a startup’s commitment to creating meaningful change while also building relationships with like-minded investors and fellow entrepreneurs.

Additionally, actively engaging in forums and networking events frequented by impact investors can greatly enhance a startup’s visibility and access to funding opportunities. By joining these communities, companies can gain valuable insights, receive feedback on their strategies, and forge connections with potential investors.

Lastly, startups should establish clear mechanisms for measuring, monitoring and reporting on their impact performance to ensure transparency and accountability. Regularly sharing detailed updates on both impact and operational metrics is essential for maintaining investor trust and confidence.

Which categories are poised to grow in 2024?

In 2024, the landscape of sustainable startups is poised for significant growth, driven by an increasing consumer preference for eco-friendly products and a heightened awareness of environmental issues.

One field that I expect will experience significant growth is renewable energy startups. As the global transition from fossil fuels gains momentum, interest in solar and wind energy technologies continues to soar. Startups in this space are well-positioned to capitalize on the growing demand for clean and renewable energy sources.

Another area of interest is electric and autonomous vehicles. With the automotive industry undergoing a profound shift toward sustainability, startups focusing on innovations in autonomous driving technologies are particularly attractive to investors.

These startups are driving forward the green revolution in transportation, offering solutions that reduce emissions and minimize environmental impact.

Lastly, climate tech startups are emerging as key players in the fight against climate change. From carbon capture technologies to climate resilience solutions, these startups are developing innovative ways to mitigate the impacts of climate change and build a more sustainable future for generations to come.

As investors increasingly prioritize environmental and social impact alongside financial returns, the outlook for sustainable startups in 2024 is bright and promising.

Eugene Krasicki is a founder and CEO of neobank Keytom, which aims to be one bank for all digital assets. An impact entrepreneur with over 15 years of expertise, he has paved his path through various industries from manufacturing and fine wine to real estate and banking. Beyond his entrepreneurial pursuits, Krasicki has a deep interest in alternative investments, recognizing their potential in diversifying portfolios and generating long-term returns.

Illustration: Dom Guzman

Every day, I’m joined by CEOs and entrepreneurs sharing the ups and downs of business building. The biggest question on all of their minds: What do I need to do for my business not just to survive, but thrive?

Many founders need help, as 50% of startups do not reach the five-year milestone. A recent post by Bessemer Venture Partners noted that, while all companies will have an initial spark, not all of them can sustain the flame to build ongoing success. Entrepreneurs who can maintain the flame demonstrate the “resilience, perseverance, innovation, and ownership mindset necessary for long-term success.”

So what can entrepreneurs do to sustain this flame? At my Florida-based startup community, Embarc Collective, we’ve seen a 96% survivability rate, despite intense market changes, a global pandemic and a massive decline in venture funding.

Here are three of the biggest commonalities I’ve seen contribute to the long-term success of those companies over the years.

A desire to listen

The pace of learning when you’re building a business is intense. Every customer discovery call, team meeting, roadmap and board update delivers an outsized volume of data points that can improve what you’re doing.

While every entrepreneur might see this information, they aren’t necessarily listening to it. To listen to this information means transforming it into actions that will improve your business in the long run.

An entrepreneur who listens and transforms is curious. And as Walmart founder Sam Walton once said: “Curiosity doesn’t kill the cat, it kills the competition.”

Your curiosity — your desire to listen and change and grow — is your biggest asset and competitive advantage.

A curious entrepreneur is eager to get inside customers’ minds. In the early days, entrepreneurs who have a genuine curiosity about how to make their customers’ lives better tend to have a faster path to product-market fit. They are continually learning what matters most to their users, and acting on it.

Because of this, these entrepreneurs are often quick to adapt and grow. They’re able and willing to make real-time modifications based on what they’re learning about their customer and their business. Their roadmaps are written in pencil, not pen. They don’t hesitate to revisit plans when customers begin pointing them in a new direction.

Furthermore, this type of entrepreneur is often an expert at context-switching. Due to the nature of their jobs, founders are often required to wear a lot of hats. This means being bombarded by a variety of inputs and tasks over the day, and the only way to navigate them is by mastering your mind’s filing cabinet.

The ability to context switch is an incredible determinant of entrepreneurs who can cut it and those who can’t. The strongest entrepreneurs can hold all that information at once, and know how to sort it in real time to inform productive iterations in products, messaging and processes.

A detachment to the ups, an opportunity with the downs

The reality of being a founder is that, for every one thing that goes according to plan, 10 things will not. A strong entrepreneur, one who can build a thriving business, has a healthy relationship with these inevitable ups and downs.

It’s important to have a balance — celebrate your wins (and acknowledge your losses), but don’t let either define you. When something goes well, recognize it, and don’t be shy to celebrate with your team. These achievements keep motivation high and validate that you’re onto something big.

However, it’s important to recognize that those wins can be fleeting. You can’t let them define you or your business. Entrepreneurs who dwell in the wins of the past can miss the information and learning moments that guide them where they need to go in the future.

As for the downs, it’s important to remember that challenges fuel iterations. A good CEO friend of mine often says, “The challenges are happening for you, not to you.”

The downs, the obstacles and the bad news all contribute to a better, stronger future so long as you know what to do with them.

Lean into the downs, and use them as an opportunity to learn, evolve and grow. You’ll be thankful to those moments in the long run.

An endurance mindset

Building a company is an endurance sport, and you should treat it as such to see success. You are an athlete of sorts, and to perform you need to take care of your health and wellness in all aspects. Founders are a core asset to the success of their business, and they need to be taken care of in the same way any other asset would be. A burnt-out founder leads to a burnt-out business.

Furthermore, it’s important, but difficult, for founders to acknowledge that they are not the brand. For a company to scale, a brand needs to take on an identity of its own, outside of the founder. Otherwise, everything the brand does is limited by the perspective and the abilities of the founder or founding team. In the same way, you let your child grow up to be their person, you need to let your brand become its entity outside of you.

Ultimately, it’s important to remember that building a business isn’t linear. There will be highs and lows and everything in between. By sticking with entrepreneurs and helping them develop the skills needed to create long-term success, your business can and will flourish.

Lakshmi Shenoy is the CEO of Embarc Collective, a startup hub located in downtown Tampa, Florida. Before moving to Tampa Bay, Shenoy served as the vice president of strategy and business development at Chicago-based incubator 1871. Prior to 1871, she worked for several top global media and advertising brands. She has a bachelor’s degree in sociology from The University of Chicago and an MBA from the Harvard Business School. She currently serves on the board for The Florida Aquarium and Junior Achievement of Tampa Bay.

Illustration: Dom Guzman

The past year marked a significant turning point in the development of artificial intelligence. But beneath the headlines is the fact that this pioneering industry is spearheaded primarily by immigrants.

Immigrants have long driven the American tech industry. The majority of the founders and leadership of American tech giants such as Alphabet, Microsoft and Tesla are immigrants.

According to an analysis by the National Foundation for American Policy, 80% of unicorn companies, or privately held billion-dollar firms, were founded by an immigrant or have an immigrant in a key policy role.

The American AI industry is similarly represented by immigrants, including Chinese-born American Fei-Fei Li, co-director of Stanford University’s Human-Centered AI Institute; British-Hong Kong-American Andrew Ng of Google Brain; and Russian-Israeli-Canadian-American Ilya Sutskever of OpenAI.

Indeed, to keep up with innovations in AI and related fields, the U.S. must encourage the brightest minds from around the world to bring their talents here.

This is vital not only for American tech dynamism but for national security. Michèle Flournoy, chair of the Center for a New American Security and former U.S. undersecretary of defense, emphasizes the impact of AI on security. In an essay for “Foreign Affairs,” she notes that the U.S. military is leveraging AI to refine a wide array of operations, from equipment maintenance to budgetary allocations.

Yet Flournoy also points out a critical vulnerability: The scarcity of government professionals equipped with the necessary technical expertise to effectively implement, manage and oversee AI technologies.

It’s crucial for the United States to address this gap. As a start, American universities must remain a pipeline for the next generation of AI engineers and researchers.

Breaking down barriers

In 2023, my organization MPower Financing — a financier of student loans for international students — saw a stunning fourfold year-over-year rise in applications from Indian students to study artificial intelligence and machine learning. We attribute this rise to bullish sentiment around the industry and the desire of India’s vast pool of talented minds to contribute to the American tech ecosystem. This staggering surge underscores not only the appeal of an American education but also the critical role international students are playing in the technological advancements shaping our future.

The U.S. needs to reform its immigration laws to harness the potential of global talents. Creating pathways that ease the transition from academia to industry for international STEM talent is not just about filling immediate labor shortages; it’s about investing in the U.S.’ long-term technological sovereignty and national security.

Congress should extend the duration of Optional Practical Training and Curricular Practical Training, programs that allow students to remain temporarily in the U.S. upon graduation. Additionally, students with in-demand skills should be exempt from the H-1B lottery, which lets them stay in the U.S. and work for an additional six years, and from green card caps, which would let them stay in the country permanently. It’s worthwhile creating additional immigration pathways for AI or STEM experts to ensure the U.S. remains the epicenter of tech innovation and military primacy.

The U.S. stands at a crossroads, with the potential to further cement its leadership in AI or to cede ground to competitors due to restrictive immigration policies. By embracing and facilitating the flow of global talent into its world-leading academic institutions and then into its tech workforce, the U.S. can ensure its continued preeminence in the AI revolution.

Sasha Ramani is head of corporate strategy for MPower Financing, a public benefit corporation offering scholarships and no-cosigner loans to international students coming to the United States and Canada. He is a CFA charterholder and seasoned management consultant who completed his master’s degree in public policy at the Harvard Kennedy School. Originally from Canada, Ramani honed his strategy and investment management skills in New York City with Deloitte Consulting and Mars and Co., where he advised investment firms on innovation, business growth strategy and organizational design. Ramani holds a BMath from the University of Waterloo and a BBA from Wilfrid Laurier University.

Illustration: Dom Guzman

Despite repeated commitments to “do better,” venture capital continues to be dogged by poor diversity and inclusion: Black investors make up an estimated 4% of venture capitalists in the U.S., and in Europe, women only represent 15% of general partners.

Studies show that people hire and back those who remind them of themselves. This “affinity bias” creates a vicious cycle. With a stark lack of diversity among VCs, is it any surprise that all-male, all-white teams remain vastly more likely to attract funding?

To add insult to injury, VCs are unwittingly fueling this status quo through “knowledge gatekeeping” — holding information and power close to their chests. This is preventing people with overlooked and underestimated backgrounds from accessing VC careers, thereby cementing the inequalities we see around who receives funding.

Extensive jargon

VC knowledge gatekeeping takes many forms. One of the biggest is jargon. “Carry,” “secondaries,” “LPs,” “bridging” — for someone new to the startup world, it’s overwhelming.

And yet very little is done to boost access to VC education. We don’t teach it in schools, nor routinely at the undergraduate level. This creates an intimidating barrier for those looking to break in. The result? The VC talent pipeline is stacked by people who have organic access to knowledge gained through parents, peers or attendance at certain institutions.

When my organization, the Newton Venture Program, launched our free ‘Foundations’ program earlier this year, more than 1,000 people signed up in a month. There is strong demand for entry-level resources; we simply need more people willing to create them.

Exclusive spaces

Another form of gatekeeping is the exclusivity of the networks and communities across VC.

Reminiscent of high school parties, lots of deal-making and knowledge-sharing happens in invite-only spaces (digital and IRL), or between industry peers with existing relationships.

This cross-firm collaboration is an integral part of VC, but it can also operate to the detriment of aspiring investors. (See also: Investors’ over-reliance on the warm intro and its impact on founder diversity.)

For those who don’t have an existing network, it’s tough to break into what can feel like a clique. And it’s those from overlooked and underestimated backgrounds who lose out. If existing members of the VC club fail to pull up aspiring recruits and invite them to the proverbial party, we will never truly diversify the industry.

Rigid resumés

Venture is a tough industry to crack. There are a limited number of funds, most with small teams, and competition is fierce. But VCs’ overreliance on resumé hallmarks are hurting diversity and excluding exciting talent.

According to one analysis, 42% of adverts for VC internships mention engineering degrees and 20% mention computer science — both male-dominated subjects. Likewise, the research showed firms expect candidates to have 0.5 to 1.11 years of experience to qualify for internship roles. This is a major barrier to entry for candidates who don’t have the connections needed to secure experience (and likely can’t afford to work for free).

By continuing to rely on rigid resumé requirements, insider mentalities and jargon-laden lexicon, VCs are gatekeeping access to the industry and unwittingly locking-in the cycle of poor diversity.

These aren’t hard problems to solve. However, fixing them requires honesty and action on the part of existing VCs and LPs. That means addressing these inequalities by investing in educational and community access programs, embracing anonymized, skills-based hiring, and ensuring teams are consciously looking to create pathways to success for those aspiring to roles in the industry.

By doing this, VCs can ditch the role of gatekeeper and instead embrace a new position as custodians of a fairer, more inclusive venture capital industry.

Eleanor Kaye is the executive director of Newton Venture Program, a joint venture between LocalGlobe VC and London Business School to diversify venture capital. Newton provides access to education and training to people from overlooked and underestimated backgrounds looking to access or accelerate careers in the industry.

Illustration: Dom Guzman

Twenty years ago, the landscape of angel investing bore scant traces of female presence, with women representing a mere 5% of all angel investors and 3% of funded companies. Fast-forward to 2022, and the scenario has transformed dramatically, with women now accounting for 40% of angel investors and 31% of angel-funded companies.

This shift is not just a numeric increase; it’s a seismic evolution reflecting broader changes in society and the business world.

Our own journey started in 2004 with Golden Seeds, a national angel network that invests exclusively in early-stage companies led by women.

We were met with much skepticism. Yet, our conviction was fueled by two undeniable trends: the burgeoning number of women-led businesses, and the growing capital, skills and networks of women to invest in startups.

Since then, the idea of investing in women-led businesses has gained substantial traction. Golden Seeds’ investments of more than $180 million in nearly 250 companies — which have in total raised an additional $2 billion — stand as a testament to the economic and social impact of women entrepreneurs and investors.

However, declaring success is premature. Despite the progress in seed investing, there is still a major disconnect between the innovation women are leading and the pace at which venture capital is realizing these opportunities.

How is it possible that women can lead half of the new businesses in the U.S. and still more than 80% of VC-funded deals in 2023 went to all-male teams? It’s equal parts baffling and frustrating.

Reflecting on our experiences, including both successes and challenges, we’ve identified meaningful ways the venture capital community can join us in our mission to direct additional capital and other forms of support to women-led startups.

Insights for the venture ecosystem

First, the compelling impact of women’s leadership on company performance cannot be overstated. Research consistently shows that gender-diverse teams and companies led by women outperform their peers financially. Last year, McKinsey reported that companies with gender-diverse executive teams are 39% more likely to achieve financial outperformance.

Similarly, BlackRock found that companies led by women CEOs have almost consistently outperformed those led by men over the past decade. The Impact Group and BCG further solidify this evidence, showing that gender-balanced boardrooms are nearly 20% more likely to improve business outcomes, and businesses founded by women deliver 2.5x higher revenue per dollar invested than those founded by all men.

This data isn’t just numbers — it’s a clear indication that diversity is a strategic advantage.

Second, the venture capital world has often relied on pattern recognition — investing in entrepreneurs who fit a familiar mold, often favoring serial entrepreneurs with a track record of successful exits. This methodology, while comfortable, has led to missed opportunities and overlooked innovation. The bias has inadvertently sidelined some of the most promising ideas, particularly those developed by women and minorities.

Third, the venture ecosystem has traditionally been concentrated on the coasts, overlooking the rich diversity and potential of startups nationwide. In 2022, 44% of funded angel deals occurred outside the traditional VC hubs, indicating a significant pool of untapped potential across the country.

Lastly, the inclusion of more women in decision-making roles within VC firms can drastically alter funding dynamics. Research from Babson College’s Diana Project indicates that when a VC firm includes at least one woman partner, the likelihood of a woman entrepreneur being funded increases by 2x to 3x. Yet, women constitute less than 20% of decision-makers in U.S. VC firms, underscoring a critical area for improvement.

Toward a more inclusive future

After two decades of pioneering investment in women-led startups, we stand at a crossroads where investing in women is not just an emerging trend but a mature movement. Today, with robust data and the cumulative wisdom of years, the impact of women as entrepreneurs and investors is undeniable. Yet, the venture community’s evolution toward gender equity and inclusivity is still ongoing.

To build a better venture ecosystem, what’s needed is not just recognition of past successes but an unwavering commitment to open new pathways for diverse entrepreneurs to access necessary funding and support.

The future of venture capital, infused with the insights and leadership of women, promises not just better outcomes for women entrepreneurs but unparalleled economic growth and innovation for all.

Loretta McCarthy is co-CEO and managing partner of Golden Seeds, an investment organization that invests in women-led startups. At Golden Seeds, she manages the national network of nearly 300 members and has been a frequent speaker domestically and internationally about early-stage investing and women entrepreneurs. Previously, she served as executive vice president and chief marketing officer at OppenheimerFunds and was an executive at the American Express Co. 

Jo Ann Corkran is co-CEO and managing partner of Golden Seeds, where she manages the deal flow and post-investment processes. She is also a general partner of three Golden Seeds venture funds that invest in early-stage companies with gender-diverse management teams.  Previously, Corkran was managing director at Credit Suisse Asset Management, Credit Suisse, and First Boston. She currently serves on the board of directors for Work Truck Solutions, a commercial vehicle inventory and marketing solutions company, and EliseAI, a machine-learning company that uses conversational AI to transform housing and healthcare. 

Illustration: Dom Guzman