From Fortune:

The past four years have been tumultuous for the tech industry. From the COVID-19 pandemic and the war in Europe, the sector has experienced a rollercoaster of change. As we enter 2024, there’s hope for a return to normalcy, but significant shifts in the tech ecosystem will impact founders and investors. Diminishing returns, lower valuations, and expensive capital are now the new normal.

The rapid adaptation of tech and remote work fueled a massive boom in the industry from 2020 through Q1 of 2022. However, the landscape has since shifted, leading to a Great Reset in tech valuations, banking crisis, and hard conversations for CEOs and investors. As we enter 2024, the tech ecosystem is faced with a new set of challenges, including rising costs of failure and diminished demand signals.

The cost of failure for tech companies has significantly increased, with the industry experiencing diminishing returns. The rapid growth and high margins that dominated the 2020-2022 period have given way to a more challenging environment. As the industry adjusts to these changes, founders and investors must be prepared for a new era of efficiency and cautious growth.

Valuations remain closer to 10-year lows than the highs of 2021, leading to significant implications for founders and investors. As net new growth gathers momentum, valuations may drift slightly upward, but the cost of failure remains high. This means that founders no longer have the option to simply sell if things don’t work out, increasing the stakes for startups in the tech industry.

Capital has become more expensive, with a significant reduction in exit activity during the Great Reset of valuations. This has led to slower capital-raising cycles and less capital flowing into the tech ecosystem. As the industry looks ahead to 2024, there may be more capital activity, but the cost of failure remains high, requiring startups to maintain sufficient cash cushion to avoid catastrophic dilution.

As we look to the future, 2024 presents an opportunity for tech startups to return to pre-pandemic growth levels. The industry has gone through a Great Reset of valuation multiples and performance expectations in recent years, and now there’s hope for a more stable and normal year ahead. Ryan Hinkle of Insight Partners expressed his excitement for the year to come and the potential for positive growth in the tech ecosystem.



Read more: Tech valuations are at a 10-year low–but optimism should be at a 5-year high despite mass layoffs. Here’s why