2020’s chaotic financial market caused by the pandemic and then the Federal Reserve’s (Fed’s) response to it created an atmosphere of irrational exuberance. Easy money led to sky-high asset valuations for VC-backed public listings, which encouraged comparable mature startups to expand their operations with easy money justified by a probable exit right around the corner.

In 2021, the easy monetary policy that kept the economy together turned into a double-edged sword as inflation reared its ugly head. Market participants sensed the party’s end as the Fed reversed course by increasing discount rates in 2022. The resulting hangover dominated the rest of that year and was coupled with commodity shocks caused by a devastating war in Eastern Europe increasing geopolitical tensions. Startups that were once gluttonous had to pivot to conserve capital through layoffs and reduced operations. At the same time, nontraditional investors, which had strongly supported the ecosystem in 2021, shied away as the exit market closed, leaving startups in the lurch.

Now, in 2023, stability appears to be on the horizon as interest rate policy becomes clearer and inflation calms, albeit more slowly than expected. Startups and investors must now come together to restart the flow of capital and clear the backlog of expectant public listings that missed their chance in 2021.