2024 Predictions: A Universal Flight to Quality

2023 felt like the 3^rd year in a row that everyone was happy to turn the page on. There’s no question that last year created a lot of discomfort, uncertainty, and doubt throughout not just the healthcare industry, but the economy at large, as venture markets took a direct hit early in the year. Our prediction for 2024 is that we’re turning the corner, slowly.

How Did We Get Here? A Review of 2023 – Venture Takes One on the Chin

People emerged from the JPMorgan Healthcare Conference in 2023 wet, tired, but only moderately pessimistic – until the run on Silicon Valley Bank pushed everyone over the edge. That led to a nearly six-month period where hiring in venture stage companies was anemic, and founders and CEOs focused on extending cash flow, leaning out teams, and doing everything they could to prevent having to enter the fundraising markets. Interest rates soared, capital got even more expensive, and many companies made the hard decision to let good people go. “We haven’t written a check all year,” was not a weird thing to hear investors say at HLTH in October, more than ¾ of the way through the year.

Compensation Didn’t Take a Nosedive

Throughout late 2022 and into early 2023, many clients asked something along the lines of, “if I wait until mid-2023, will talent be more affordable?” Our guidance was “no,” and that bore out over the course of the year. Q3 ’20 through Q1 ’22 was a bonanza that drove compensation to silly places. When venture dollars dried up, broader inflationary pressure seems to have propped up wage rates. So, while the market softened a bit, and comp packages normalized, we didn’t see a precipitous drop. Some functions that had been inflated dramatically – growth and product – did see more meaningful declines, but on balance compensation remained stable.

Well-Capped & Later Stage Companies Pressed Their Advantage

While lots of people stayed out of the hiring market or focused their efforts internally, companies with cash on hand and clear growth plans capitalized on their position and snapped up great talent that doesn’t come on the market very often. Throughout Q2 and Q3, we saw companies strategically launch key searches a bit earlier than necessary to put some distance between themselves and their competition. With fewer companies competing while they played wait-and-see, this also gave companies a chance to run less frenetic search processes, and not contend with multiple offers, as they often had in the trailing two years.

A Fall Boom, with Plenty of Top-grading

Labor Day broke the floodgates open, and mid to late-stage venture companies re-entered the hiring market aggressively. The trend line showed companies that had raised big rounds in the Fall of 2022 spent the next 12 months focused on building with what they had, and getting to the next major inflection point.  Many then went back to market to upgrade key roles in their C-suite to make sure they had the right people for the next chapter - either having made a hiring mistake during the frenzied days or organically outgrowing certain leaders.  This was evidenced by the fact that we did more confidential searches in 2023 (mostly due to replacing incumbents), than in all previous years, combined.

Flat, Quiet or Down?

Flat rounds were the new up rounds, and we saw a big uptick in quiet and/or inside bridge rounds, as well as down rounds. Some of this was a natural correction from the exuberant overvaluations that were commonplace in 2021 and early 2022 – the abundance of cheap money kicked the can down the road on some companies that probably didn’t have what it takes to go the distance. As we’ll get into in our predictions, this particular trend is setting us up for an interesting year from a talent perspective, the consequences of which we have yet to feel.

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What’s On the Horizon for 2024?

1. The Funding Environment Continues to Soften

Funders did a decent amount of fundraising themselves last year, though in many cases making fewer investments than in years past. At some point, that backlog of capital will have to be deployed. We predict an outsized portion of this will go in as follow-on investments in companies already in investor portfolios, but there will still be bets made on new teams and ideas. The bar will be higher to secure capital, so founders and CEOs will need to have tight stories, be solving real problems, and have happy customers generating real revenue to clear the bar for Series A and beyond.

2. The Deck Chairs Get Rearranged – Again

This is where we pull through the thread of last year’s run of flat, down and quiet rounds. The collateral damage is that those rounds put many employees’ options underwater, with little hope of getting back to where they were. This means that in many cases, the thing most people go to work hard in startups for alongside the mission – equity – is worthless to them in their current role. Couple that with the fact that polling suggests many people who changed roles during the Great Resignation ultimately regretted the move they made, and you have the recipe for change. Many of those folks are coming up on 2 years in that new role, are feeling more comfortable that their resume won’t look jumpy and are starting to look.

3. A Universal Flight to Quality

This isn’t just candidates. It’s everyone. Candidates making changes will be looking for perceived stability – recent raises and/or well capitalized companies, strong balance sheets, product market fit, and great teams with great culture. Expect more companies to shutter, leading to more talent aggregating around fewer high-quality companies with real longevity potential (this is a good thing). 

Similarly, we expect companies will tighten their definition of what the right investor looks like for them, and we anticipate that we will see far less healthcare investment from non-healthcare investors. Companies raising capital will also be more thoughtful about both the cost of capital, and the expertise that comes with it, looking for VCs that are more than just capital and a nice valuation. 

Lastly – and this has already begun – the bar for all rounds will be, err…raised. No pun intended. The goal posts move again in 2024 with respect to what companies need to show to raise a Series A. Things like meaningful revenue, referenceable customers, strong org design, solid product market fit, and a robust sales pipeline look like they’re going to be table stakes. We’ve heard instances already of these high expectations trickling down to Seed rounds.  

4. Wild Card

The one thing that promises to be predictably unpredictable is this year’s election cycle. At minimum, the last one had a significant impact on everyone’s mental and emotional health, and the sequel looks to be worse. It’s hard to know how this will impact us directly, but we’re expecting some resilience fatigue as we get deeper into it. Hopefully it won’t create too much of a distraction, but we’re keeping a close eye on it, mainly as it relates to our team’s wellbeing.

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A Healthy Balanced 2024

Our overall prediction for 2024 is that it’s a balanced year, with healthy growth in the space, and stabilization of funding markets for companies that need to raise. Valuations will come back down to earth, and good companies will be able to raise what they need, invest in talent and avoid chasing valuations they never should have gotten. We anticipate significant movement across all functional roles, with executives seeking their next leadership opportunity, but we don’t believe this will create the same upward pressure on compensation that we saw in 2021 and 2022. This will get us as close to equilibrium between employee/employer supply/demand as we’ve seen since Q1 of 2020. As a result, compensation stays largely flat, with functions like Product and Growth already seeing dips last year from all-time highs. Competition will be significant for top talent, as those executives are more discerning this time around, and there will be a more normalized supply of opportunities than there was in 2021 and 2022, and we expect decision making at the candidate level to track with our previous comments about the flight to quality. We expect search time to close will decrease, as we are seeing more and more companies coming to market with clearer definitions of role scope in light of the time they’ve had to prepare. Layoffs aren’t quite done yet, but perhaps by mid Q2 they have slowed if not stopped, and there will be more quiet acquihires of companies that are likely more product or feature than they are scalable business. On balance we enter the year with cautious optimism, excitement about our team and our partners, and the promise of making a continued impact on our healthcare system.

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About Aequitas

Founded in 2014, Aequitas Partners is one of the preeminent talent partners for high-growth healthcare companies. We’re called Aequitas [eh.kwi.täs] because integrity is in our DNA and equity is foundational to how we work. With a diverse portfolio of offerings, we work with some of the most exciting companies in the industry, assembling teams tackling the biggest challenges facing healthcare, while supporting Founders, CEOs and Boards in all facets of human capital development.If you’re an executive seeking your new a new opportunity or a leader at a growing organization and looking to continue your momentum, please contact us.