2024 Predictions Episode

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December 21, 2023

DESCRIPTION

In the closing episode for 2023, I’m discussing rapid-fire predictions with my colleagues—Phuong, Mike, and Chris—highlighting insights for the upcoming year.

Phuong discusses her predictions for 2024, focusing on AI's impact on businesses, particularly in marketing, customer service, and the rise of co-pilots. Mike dives into predictions about higher valuations for Series A, abundant growth market capital, increased M&A activity, and a potentially opened IPO market in 2024. Chris is foreseeing volatility across various asset classes, a potential credit crunch or crisis, and geopolitical tensions impacting global markets. He predicts lower interest rates, a higher S&P 500, unresolved conflicts in regions like Ukraine and the Middle East, and the likelihood of a new conflict arising, possibly in East Asia.

Please remember self-care during the holidays, take time off and take care of yourself for mental relaxation and well-being.

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TRANSCRIPT (this is an automated transcript):

MPD: Welcome, everybody. I'm Mark Peter Davis, Managing Partner of Interplay. I'm on a mission to help entrepreneurs advance society. And this podcast is totally part of that effort. This is the last episode we're doing for 2023. And we're taking a little bit of a different spin, taking the partners through a 2024 predictions exercise.

They're getting a little free form prediction situation, and then I'm doing a rapid fire at the end of each of their segments. Thanks Kind of forcing the buck on some tougher questions. So hopefully you enjoy that. We will be back producing content. Middle of Jan, 2024. So stay tuned. We'll be back in your pod feed.

But in the meantime, enjoy the episode.

Hello, Phuong. Hey, Mark. How are you? Good. You're pretty fired up to be done recording for the year?

Phuong: No, I love this. This is like the highlight of my week.

MPD: You're so positive. I like that. I like

Phuong: that. I Am excited though for 2024 in case.

MPD: 24 has got you fired up. Forget the predictions for a second.

Is there something you're looking forward to personal or worker?

Phuong: I think, there's just a lot of like things in the works right now. I think from My kids, we have some really great travel planned hopefully taking them to Asia next year. And there's a lot of good things in the pipeline for the incubators.

I'm really excited about

MPD: that. And this was Vietnam with the family? Yeah. That was the

Phuong: Yeah, finally agreeing my parents are agreeing to sell their business so they can come with us. Whoa! I'll believe it when it happens, but that was the promise.

MPD: If Phong, that's big news. That's awesome. All right.

Yeah, I'm excited about it. To some good luck in the new year. But in the meantime, you have some very important predictions to make.

Phuong: All right. Everyone knows 2023 has been a crazy year and a lot of founders have been through the ringer. I'm pretty excited for 2024 and I've got three predictions today that, they're not crazy.

I feel pretty good about them. So I'm going to. Tell you those and I'm going to give you some tips on how founders can respond to these trends and leverage them to your advantage. So prediction number one is that companies are going to figure out how to leverage generative AI to drive their businesses.

Not to be too obvious, but AI is going to majorly impact the way the companies operate. And ever since chat GPT launched, there's been so much hype around the impact of AI and whether or not it's going to change everything and replace everyone. But in 2024, I think that companies are going to start figuring out actually what to do with it and start implementing it across different parts of their businesses.

And to me, the biggest areas that AI will impact are marketing, customer service, and the increased use of co pilots. So first of marketing, I think there's lots of opportunities here for AI to automate and scale processes that were previously manual. And then at the same time, Be able to integrate real time data and insights that can build higher performing campaigns.

One of the biggest impact areas is in content creation, which has been a huge bottleneck for marketing teams. You never know what's going to perform until you test it. So companies who have been winning at content marketing have been spending a lot of time and a lot of resources creating massive amounts of content.

But that's really hard for smaller early stage companies to do since they don't have a lot of resources. I think a I content generation tools will level the playing fields of it and make it cheaper and faster to create content across text, image and video. 2nd area is customer service, and I don't think is going to replace customer service representatives, but I do think that smart companies will use a I to supercharge what they do.

A. I. Tools are gonna allow customers support teams to access real time information on the customer and the product and offer intelligent suggestions on how to handle customer interactions. I think this is just gonna make the whole process smoother and faster and provide a great experience for customers.

Then the last area is copilots. I think the rise of copilots. For specific industries and functions is going to change the way that companies leverage their data and their time. If you don't know, co pilots are AI systems that assist and collaborate with people to do tasks that require a lot of complex decision making.

They've been used historically more in aviation and self driving vehicles, but now they're popping up across a lot of different industries. For example, we're currently working with a company in the Interplay incubator called Purple AI. Which is a co pilot for consumer brands and merchants purple taps into vast amounts of data sources from the company's internal customer and product data to external sources like trend forecasts and competitor offerings to help merchant teams create customer centric products and strategies.

The AI actually designs products for companies. Based on what's sold well before their specific customer preference and what's on trend, it's pretty amazing to be able to drive creative strategies with hard data. And that just wasn't possible before. All right, prediction number 2 is that customer acquisition costs will continue to rise both in B2B and B2C.

Given some of the efficiency gains we talked about earlier, as marketing teams start leveraging AI, you can expect advertising spend to increase. And then that'll drive up acquisition costs overall. But instead of focusing on new customer acquisition strategies, I believe that one of the best ways to acquire new customers is to pay attention to your current customers.

cuStomers who have an amazing experience with your brand. Will be more likely to tell their friends and families about you and that word of mouth recommendation to a new customer is more powerful than any advertising. When you're thinking about customer attention, make sure you're creating a holistic strategy across all channels, not just sending the occasional email personalize your message to different segments of customers based on their needs.

And then don't forget about surprising and delighting. So unexpected perks, discounts, and gifts go a long way in creating a wow factor that makes customers feel warm and fuzzy towards your brand. Then last prediction is that attracting and retaining talent will continue to get harder. So this was an ongoing trend that started during the pandemic.

And I don't think it's reversing in 2024. I have a similar perspective to this as I do with customer acquisition. If it's getting increasingly harder to attract new talent. Make sure your prior prioritizing the experience of your current employees use a tool such as an employee experience map to identify opportunities for improvement include stages, such as the pre hire higher onboarding development off boarding.

Once you have this map out the employees experience at each stage and look for holes in the journey. An employee who experiences mutual trust, appreciation, and shares in the company's vision will be less likely to leave. So that's what I have. My predictions for 2024, nothing crazy or unexpected, but let's see what happens.

MPD: Very solid. Are you ready for the rapid fire round? Sure. Buckle your seatbelt. I'm going to try to make these kind of yes or no. Or A or B, but I'm going to ask a question and you just got to pick one side of the options. All right, ready, set, go. Okay, will AI disrupt more than five common operational processes used by startups?

Yes. More than five. Will AI disrupt more than five operational processes used by large companies? Definitely. Will AI destroy or create more jobs in 2024?

Phuong: I think it'll create more. I don't know if that'll, that will maintain like down the line, but I think that in the early days, it should

MPD: create more.

Okay, I went a I first because you covered it earlier. We also have worked with some companies in Latin America. So here's a Latin question. Will Latin produce more startups in 24 than 23?

Phuong: Yes, I think so. I think Latam is a really hot market and I think that 2024 is going to be a great year for it.

MPD: All right. Last one. President United States. Not who? Blue or red? Blue. There we have it. Thank you. Phuong. Mike, what do you got for 2024? Any predictions? I'm going to do rabbit fire if you don't give me anything good. No, I have some stuff. I'm

Mike: going to throw you in the hot seat. Why don't you go first, and if we miss something, I'll wrap it up.

MPD: Great, ready? Yeah. Each of these are yes or no questions, or like A or B, they're binary, so you don't have to like You can't shade it. There's no easy way out. Average series, a valuation higher or lower in 24 versus 23 higher growth market capital. So capital for gross stage companies, more or less abundant in 24 than 23.

Certainly more abundant. Lowest bar ever. Yeah.

Mike: Let me just add a higher context there. I think it's because. It, that growth capital won't be going to the last crop of companies. It'll be going to the new crop of companies that are reaching growth stage.

MPD: So you don't think you think the ones that need a price reset are going to be orphaned

Mike: orphaned or, they'll raise some amount of capital or whatever.

But it's the reason why we will see growth again in the growth markets is because. The new batch of companies that got started two years ago now, or three years ago now, let's say they were early enough to update their business model, pivot, right size, their team, et cetera, et cetera, and grow in the model that growth investors want to see today.

We'll be ready for growth rounds sometime this year and they will receive capital for their hard work.

MPD: thEre's an echo chamber here. We could probably go back and play you on this pod a year ago or whatever, however long ago and you and every other wise VC out there saying, don't raise it valuations that you can't support where the market normalizes because it fucks you up.

And here you are. Okay. M and a activity. Up or down from 23?

Not as, now

Mike: I'm gonna say, I'm gonna say up. And the only reason why I'm gonna say up is because rates will be lower and debt financing for acquisitions will be cheaper, okay? And therefore, purchase prices will be, will

MPD: be more tenable. Will the IPO market open up? I don't mean a trickle, drab IPO happening that doesn't really perform well.

Will the IPO market open up and become attractive again in 24? Yes or no? Yes.

Mike: And I'm saying that on as much of a prayer as a , as much as

MPD: a , it's not a prediction, it's a hope.

Mike: Okay. As much as a hope is a prediction. I, again, I think similar to the growth markets, mark it, there's not much lower it can go.

So to, to take the other side of that, that is, is a fairly easy play here.

MPD: LPs leading into the venture book again, right? A lot of LPs have had a denominator effect. They haven't been able to allocate. To venture for a little bit of time, I think they'll be showing up to bat again in 24. Yeah. Yeah. I think,

Mike: I think you're, even better person to answer that question than I am.

But I think from what we've seen, the conversations we've had, it appears very clear to us that LPs are stepping back into the venture arena, looking to reallocate, to some new managers, but also to existing managers and get their feet back in the water. Now that the, to your point, there's not many effects off the table, public markets are back at all time highs.

And it seems like the world did not end, especially in the venture community, which I think was the fear for a little while was how is anyone going to make money in the space that has not come true. I think most importantly, too, and this is something I think is really worth touching on. There was a while there where the investor sentiment was how high can rates go?

No one knew, right? We ended up, it looks like we peaked. A few months ago rates have come down significantly. I know you and Chris talked about this and everyone's talking about it. So I won't beat it too much right now, but it looks based on all indications from the Fed and the markets that rates have peaked and we are coming down the slope.

Now, we will not go back to zero interest rates where we were during cobit. We will come back to some lower than normal rate cycle. And I say that because the long term average of the 10 year, depending on how you cut the cake is somewhere around 4. 5 to 5. 5%. Depends when you slice it and dice it cut the data there.

We're below that. Now, in the high threes as we speak, and that number is going to keep coming down. So we will be in a, the next cycle will still be a lower rate environment. Now we can spend the whole hour talking about why that is and how that will shape up for companies, but for now, let's just say it's lower than historical averages, and I think that will be bullish for venture and for risk assets in the next during this next

MPD: cycle.

Yeah. I would just say it's not just this. cuRve that some economists can draw of an interest rate is X dollars deployed to venture goes to Y part of it. Part of it is just a psychological component. When interest rates seem to be going up with no end in sight, people don't the hell's going on and it's pencils down until things stabilize a little bit.

And it seems like it's. Probably plateaued and there's a lot of people betting on a decline. Now. Okay. No, let's

Mike: straighten that. Okay. It's to straighten that out. It's declining. It's not betting on decline. The Fed has said rates are going to get cut. How fast and how far is the question mark now? But in terms of risk cycles.

The way down is much more risk on than the way off, the way up. So it is a net positive for capital being deployed into risk

MPD: assets. I've been floating around the New York VC ecosystem now for a lot of years. I should know the number. I think it's 18 years. The logos that were here when I started that are still here are five, maybe now it was out of a small sample set at the time.

There's a lot more logos around. More than I think there's 150 firms represented in New York now, plus, with at least one person here, even if this is not their HQ. Will more or less than 10 New York VC logos disappear?

I think that's a tough question to answer.

Mike: I will take the contrarian view on this. I will say the number of VC logos will keep growing, but you will have churn. So there will be not just asking about the channel. I think you will have. Yeah, but you got to think about it as like net new ARR, right? So you will have many firms fail or reorganize under new names, et cetera.

But I think that the thing that won't change, I think the venture market will continue to grow, which means you will have more firms over time, deploying more capital into more companies. And I think you and I have talked about this a bunch on this podcast. This is all net positive for the country, for the world for the business that we work in.

So I think, yes, a bunch of firms that as we knew them will be gone. Those folks that work at those firms, some will find new jobs, some will reorganize into new funds. But the trend is still up into the right for DC as an asset class, which is wonderful for humanity.

MPD: Presidential election, blue or red outcome?

No names, just blue or red. Purple. Fuck. How do you do a purple? Third party?

Mike: I think if I was going to

MPD: be A JV? If I was going to be an

Mike: actual betting man, and this is not a political affiliation statement whatsoever, I would bet on blue. I think first off, like incumbents are hard to beat in the White House.

The economy is doing well. Rates are going to keep going. Rates are coming down now. You can argue that there's some political motive there or not. I have no idea. And I won't even try to find there, but it's happening. So let's just take the data as it is. Rates are falling, the economy is still growing very well.

Inflation is down. I think it will be tough to beat an incumbent president or incumbent political party for that matter. Going into what seems to be a very good economic situation for us.

MPD: Thank you, Mike. Cool. Happy New Year. We'll catch you in 24. Happy New

Mike: Year. Thank you,

MPD: Chris. Hello, friend. What's

Chris: up, Mark?

Twice in a week. Too much of you.

MPD: I know you must be. I'm sorry. That's all I can say. I'm sorry. So we're doing the end of year situation. So over to you. What do you think is going to

Chris: happen in 24? It's really, I think everyone at this point of the year is writing about their predictions, their summaries and it's it's been 1 of those really complicated years.

And I think. Which sets up 2024 to be even more complicated. That's if you have to ask me to summarize in 1 sentence, that's really what I think. And I can break it down a little bit further, but it's very difficult to do so in 5 minutes. The main thing I would say is. As a market participant, I fully expect next year to be a very volatile year across all asset classes, especially equity and fixed income.

Everyone knows that the U. S. debt ceiling drama, which happened twice already this year, has been postponed to early 2024, which in my opinion, sets up the stage for a very interesting election year as well, that happens in Q3, but U. S. election, which is drawing most of the attention, is not really the only election that matters in 2024.

We also actually have general elections in Russia, in Ukraine. In India, in Indonesia, and in the UK, these are most populous countries in the world. Of course, countries with geopolitical risks and ongoing wars and a lot of influence across the board. So many of these general elections don't aren't supposed to have surprises some will, and that will introduce a ton of volatility to what's already a very.

Expected to be a very volatile year just from other macro factors. And and we already know that, us is not being very conservative on its budgeting. I think based on the research I've done, the physical spending in the US is about 9 percent higher than last year, which is about 38 percent higher than pre covid.

And deficits are expected to be around 6%. Which is which every year which doubles the pre pandemic levels. And so you combine for these deficits number, which again, of course, insights, invites more inflation and all these general elections around the world. Neither, which are conducive for risk assets and volatility.

So for sure, my number 1 prediction is number 2024 will be a very volatile year. The second thing I think is really worth mentioning, and I do think will happen is credit spreads and really general credit quality of different asset classes will be affected. This year, we had the regional bank, regional banking crisis.

And what people probably sometimes tend to neglect is that not only were regional banks were affected or the depositors. It's the companies that rely on regional banks loans are also going to be affected in 1st quarter 2003 alone. I Think the US courts recorded 57 large insolvencies in the US.

Okay. And that is the worst quarter since 2009 since the financial crisis. And that trend, in my opinion, will continue into 2024, especially because a lot of the corporates are going to run into sort of a maturity wall on their bonds and loans, which will have to be refinanced in 20, 24 and 25, but rates are still elevated.

Regional banks are likely to continue to weaken, especially based on the rumor in the market that the regulators are expected to come in and increase. Regulatory capital even further that weakens banks balance sheet and margin profile. So the defaults in regional banking sector is likely to continue, which tightens credit in the U.

S. And all these sort of loans and bonds are coming due with elevated interest rates. So overall, that means that there's likely going to be a credit crunch and if not a credit crisis in 2024. We haven't even touched on the most effective sector of all, which is commercial real estate. Transcribed and a lot of these construction loans will need to be refinanced at much higher interest rates with lower demand, lower occupancy. And the default that will be triggered from that whole sector, then spoils into the rest. So you get these sort of cascading impact in secondary tertiary market. So overall credit crunch credit crisis is likely to happen in 10.

4.

We have, of course, in the backdrop of all of these, we have the US Federal Reserve, which now, all eyes on them in terms of how they're going to plan to cut in 2024. As we talked about in the last chat, that market is pricing in 5 to 6 cuts by the end of next year. To the extent there's diversion from that, from what the actual, what the Fed is actually going to do, there's going to be consequences one way or another.

If the Fed stays on course of what the market expects, you could fully expect a weakening of U. S. dollar. Due to lower industry and much faster cutting pace versus other countries and related to that higher energy prices, right? Oil and gas. Of course, there's supply demand that drives really that the central prices price volatility is there, but.

It sends all these most of the world's reserves that are really still denominated dollar, a weakening dollar will likely mean higher oil prices on top of what everyone's really thinking about shrinking supply. So higher oil and gas in prices, weakening us dollar, which that has different consequences in in a secondary tertiary asset classes.

That's number 3, so number 4, which and I'll stop here, we'll have the other smart predictions we can get into if you like, but. My number four biggest prediction here is in terms of regional diversification. So our team has done a really good job in fundamental researches here and studying Latam, Africa, Southeast Asia, East Asia, Middle East and Europe in terms of macro valuations right across all companies that are publicly traded and reported.

And what we realized that not only do Latam and Africa. Look cheap on EV, but that basis versus let's say East Asia, Europe, East they also look, they look even cheaper on a growth adjusted margin adjusted basis and efficiency adjust the basis. Versus the regions and versus their historical sort of 5 year running fundamentals.

And that's numbers that not just visible to us, right? That's visible to allocators around the world who are looking at these numbers with assets. And cash sitting on the sideline waiting to be deployed, I think that the focus to diversification to diversify the portfolio will likely be a lot of time in Africa next year, even more so than the prior years, right?

It's not a secret that these 2 are growth regions of growth engines of the world, and everyone's looking at investing into the regions. But because of sort of the instability or geopolitical risk in Asia, East Asia, and Middle East the tensions are now going to be less on those regions going forward, at least temporarily for the next year or two, more so in the other growth engines, like Latin Africa, and on top of that, fundamentally, they look better.

So personally, I do think there would be renewed focus and much more capital flowing into those regions, which should impact everyone's portfolio. And we'll do another 1 of those sort of round up and look back, but in the next year to see if that's transpired into higher valuations in those regions.

But I do think it will happen next year. That's it. So that's also for our money for major predictions. And there are other ones we're happy to dive into as well in details.

MPD: So the thing you said, the scares me the most big picture. So a lot of immediate tumult coming our, everyone's way. If things continue the way they get going is historically, a lot of empires have fallen.

Because of financial mismanagement, Rome, British empire, and hearing an expanding deficit strategy in the U. S. is at this point is just disconcerting. Okay, comment made. I want to go to a rapid fire round. I'm going to give you two choices. You just pick. And I know these are what you're predicting, not what you want.

So just predictions ready? Okay. Yep. Okay. End of 2024. Interest rates

Chris: higher or lower than today? Lower, that's a easy one.

MPD: End of 20, 24 s and p. 500. Higher or lower than today?

Chris: Higher. Also easy. One.

MPD: End of 2024. Argentina, dollarized, or not ?

Chris: Not Dollarized. That's too soon. Not

MPD: dollarized. Okay. And the 2024 conflict in Ukraine resolved or not?

Chris: Yes, resolved. Resolved doesn't mean it's a temporary result. So temporary, basically war is going to stop. Yes, in my opinion, but it doesn't mean that actual historical conflict will be resolved.

MPD: And in 2024, conflict in the Middle East. Is the current hot conflict resolved or expanded?

Chris: Expanded. Not what I want, but it's too complicated to get resolved.

MPD: And in 2024, is there a new front with a new conflict, hot conflict around the globe or not? Yes or no?

Chris: History is in my favorite year. Every year there's a new conflict.

So yes, there's going to be a new conflict that draws everyone's attention. And it's going to be a risk off event. If you ask me where it might happen, the most likely I can only say based on what I know, likely East Asia.

MPD: American presidency outcome, red or blue, that's all it is. Just pick a color.

Chris: This is what I think will happen, right? Blue.

Thank you, Chris.

MPD: Thank you. Here's to hoping for better than predicted days in 24.

Chris: I agree. Thanks, Mark. Happy new year, everyone. And a quick reminder for

MPD: everybody. Chris is an SEC registered RAA. Nothing he has said should be construed as an investment advice.

All right, everybody. Hopefully you enjoyed that. Happy holidays. If we can be helpful with anything, you know where to find us interplay. vc. Much love. And try to find some mental time to relax and find peace. I used to try to work my way through the holidays with the thinking that if I worked harder during the holidays, I would get ahead.

And the reality is you're just running on a treadmill not making any progress because everyone else is off. Take the time, rest, meditate, eat healthy, stretch, do whatever you got to do. But take care of yourself because self care is a big part of being productive. Enjoy. Happy holidays, everybody. Catch you next year.

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Interplay Family Office LLC (“Interplay”) is registered as an investment adviser with U.S. Securities and Exchange Commission (“SEC”). Registration of an investment adviser does not imply any level of skill or training. Information about the qualifications and business practices of Interplay is available on the SEC’s website at www.adviserinfo.sec.gov._ Interplay only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Offering of asset management services through Interplay is pursuant to an investment advisory agreement.The views expressed in this podcast are subject to change based on market and other conditions. The podcast; may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.Information communicated during the podcast; does not involve the rendering o