Mark Wasserman

Managing Partner of Eversheds Sutherland (US) and Co-CEO of Eversheds Sutherland Limited

[David Cummings @davidcummings]

Silicon Valley Bank recently published a report analyzing the growth and decline of VC-backed startups since 2022 across the largest metro regions in the United States. Using 2022 as the baseline year, the data shows that, across nearly every major market outside the San Francisco Bay Area, the number of newly VC-backed startups has dropped sharply. In places like Atlanta and Los Angeles, the number is down nearly 50 percent.

What happened?

Here are a few perspectives.

1. The hangover from 2020 and 2021
During the depths of COVID, tech startup valuations surged. As millions of people shifted to remote work, capital poured into productivity tools and software for laptop-based workers. Combined with near-zero interest rates, this created a speculative environment where significant amounts of capital were invested at valuations that, in hindsight, were not sustainable.

When interest rates rose and liquidity tightened, growth rates slowed. Public market valuations declined, which forced a reset in private markets. Many startups that raised capital during that period found themselves overvalued relative to new market conditions. Venture funds from that vintage are, in many cases, still underwater.

As a result, venture capital firms slowed their pace of investment, and limited partners reduced allocations to the asset class. Given those dynamics, a decline in newly VC-backed startups was inevitable.

2. AI investments crowding out everything else
On November 30, 2022, ChatGPT was released, marking a clear inflection point. It was both an “aha” moment and the beginning of a new technology cycle centered on artificial intelligence.

The implications for legal services, finance, healthcare, software development, research, analytics, and virtually every other knowledge-based profession became immediately apparent. Venture capital and corporate investment dollars shifted aggressively toward AI. The center of gravity returned to San Francisco, where much of the foundational AI work was concentrated.

Capital that might have gone to traditional SaaS and productivity startups instead flowed into AI infrastructure, foundation models, and experimental prototypes. Expected growth in traditional SaaS segments failed to materialize. As AI capabilities advanced faster than anticipated, even more capital followed.

Today, a meaningful share of economic growth is tied to AI-related investment, including data centers, GPUs, specialized chips, power generation, and cooling infrastructure. In this environment, non-AI startups are competing for a shrinking pool of venture dollars. AI has crowded out a substantial portion of traditional venture-backed startup formation.

3. Public software company valuation resets
As AI has improved, particularly in areas like code generation and software development, the perceived terminal value of many traditional software businesses has come under pressure. Barriers to entry are lower. New competitors can be launched more quickly. At the same time, companies expect to achieve greater productivity with fewer employees, slowing seat-based SaaS expansion.

The net effect is that public software company valuations are down significantly from their highs. When public multiples contract, private market valuations must adjust as well.

If a startup raised its last round at 10x revenue and the market now supports 5x revenue, management teams are understandably reluctant to raise capital at a lower valuation. Instead, many choose to conserve cash and attempt to grow into a stronger valuation. Venture capitalists, closely tracking public market comparables, are also less willing to pay premium valuations for non-core AI startups. This often results in a valuation impasse. Fewer deals get done, and fewer startups are newly VC-backed.

The broader perspective

The most important reminder when reviewing the SVB data is that the vast majority of startups are not venture-backed and never will be.

Startup activity itself remains strong. It has never been cheaper to build a product. The tools available to founders, especially AI-driven tools, dramatically lower the cost of experimentation and iteration. Robotics and intelligent hardware are also emerging as significant long-term trends.

We are at the beginning of another innovation cycle. Venture capital plays a role in a small fraction of startup formation. While VC is still digesting the excesses of the COVID-era bubble and concentrating capital in AI, particularly in large foundation model companies, entrepreneurship more broadly is alive and well.

The number of newly VC-backed startups may be down. The number of new startups, however, is not. The long-term outlook for builders remains bright.

[Eversheds Sutherland SALT @ESsaltlaw]

The Q3 2025 SALT Scoreboard is live! This edition includes developments in state and local False Claims Acts, corporate income tax apportionment, and manufacturing exemptions. We also spotlight a couple of recent decisions on digital taxation. Read now: https://t.co/dOILVmYn63

[Alliance Theatre @alliancetheatre]

After-school programming available!

Want Alliance Theatre in your school? Reach out to us! Programs include Intro to Acting, On-Camera Acting, Improv, and Musical Theatre.

Contact us at [email protected]!

[Eversheds Sutherland SALT @ESsaltlaw]

There's still time to register! Join SALT attorneys Jonathan Feldman and Alla Raykin on Dec. 11 as they discuss the establishment of Georgia’s new judicial branch tax court in an event hosted by the Tax Law Sections of @atlantabar and State Bar of Georgia. https://t.co/ls53mNgaJP

[Eversheds Sutherland Tax @EStaxlaw]

Eversheds Sutherland Partners Mike Lebovitz & Mary Monahan will serve as panelists during the 19th Annual Procopio International Tax Institute (PITI) Conference, which showcases the latest developments in international tax laws of the US and Mexico. https://t.co/hxqFT5c1Fk

[Eversheds Sutherland SALT @ESsaltlaw]

SALT Partners Todd Betor, Jeff Friedman, Charlie Kearns, Dan Schlueter & Maria Todorova are pleased to present during the 2024 Broadband Tax Institute (BTI) Annual Conference, held Oct. 21-23. Their panels will cover state tax policy, litigation & more. https://t.co/NAwqjsMlqZ

[Eversheds Sutherland SALT @ESsaltlaw]

Since 2016, our SALT team has tallied the results of what we deem to be significant taxpayer wins and losses and analyzed those results. Read the latest edition of our SALT Scoreboard now! https://t.co/aToS6ehVCm

[Eversheds Sutherland Tax @EStaxlaw]

This week, Eversheds Sutherland Partner Michael Lebovitz will be one of the panelists at the Pacific Rim Tax Conference, speaking on key issues relating to the global implementation of Pillar Two and its impact on US multinationals. #InternationalTax https://t.co/XXrMCldVqs

[Eversheds Sutherland @ESgloballaw]

📣 New guide: As more companies get on-board with new #AI systems, it is important to carefully consider the risks associated with their development and use. All AI-Board is our new legal guide to navigating AI, offering bite-sized, Board-level insights on the key legal issues📣 New guide: As more companies get on-board with new #AI systems, it is important to carefully consider the risks associated with their development and use. All AI-Board is our new legal guide to navigating AI, offering bite-sized, Board-level insights on the key legal issues📣 New guide: As more companies get on-board with new #AI systems, it is important to carefully consider the risks associated with their development and use. All AI-Board is our new legal guide to navigating AI, offering bite-sized, Board-level insights on the key legal issues📣 New guide: As more companies get on-board with new #AI systems, it is important to carefully consider the risks associated with their development and use. All AI-Board is our new legal guide to navigating AI, offering bite-sized, Board-level insights on the key legal issues.

[Eversheds Sutherland @ESgloballaw]

Happy International Women’s Day!

Today we come together as a firm to recognize, but also to continue our efforts on better understanding and addressing the issues impacting gender equity and inclusion.

#IWD2024

[Eversheds Sutherland @ESgloballaw]

Join Eversheds Sutherland for our Global Tech Series San Francisco breakfast event for a roundtable discussion about the regulatory and practical approach to AI. Register now! #Technology #Regulations https://t.co/wYAB8n0y7z

[Eversheds Sutherland @ESgloballaw]

We’re pleased to announce the election of eight new partners and the promotion of 12 new counsel, effective January 1, 2024. Read more on our promoted Partners: https://t.co/RrSK5YzF8P our promoted Counsel: https://t.co/LcQzXVvw0Y

[Eversheds Sutherland @ESgloballaw]

Thank you to our clients who joined us in Atlanta and NYC recently for our AI Academy – AI Unplugged! Topics included governance, risk and compliance issues. We look forward to seeing you in 2024 at one of our additional #AI Academies.

[Eversheds Sutherland Tax @EStaxlaw]

Eversheds Sutherland advises Enbridge on expanding partnership with EDF Renewables with investment in Fox Squirrel Solar Project. #Energy #RenewableEnergy https://t.co/NaE1Gjzx3n

[Eversheds Sutherland Tax @EStaxlaw]

Eversheds Sutherland is a proud sponsor of @COSTNews' 54th Annual Meeting this week. Tax Practice Group members will present on a variety of topics, including business tax increases, financial accounting for SALT, the new mobile workforce and more. https://t.co/gX4D9DILaP

[Sam Stein @samstein]

fairly remarkable statement

[Eversheds Sutherland @ESgloballaw]

We're excited to announce that Partner @Nasserak has been appointed as our Global Head of AI, alongside news on our Global AI Leadership Team, Global AI Task Force and global generative #AI skills development program. Read more: https://t.co/q9LoGxMa2p

[Eversheds Sutherland SALT @ESsaltlaw]

This episode of the SALT Shaker Podcast welcomes a new voice, Eversheds Sutherland Associate Laurin McDonald. Laurin joins Associate Jeremy Gove to describe 80/20 rules used by states in the context of water’s-edge combined reporting. #SALT #Tax https://t.co/jz5YM00xZ9

[Eversheds Sutherland @ESgloballaw]

In this article published by @GIRalerts, attorneys Michael Bahar, Rachel Reid, Mary Jane Wilson-Bilik and Ron Zdrojeski powerfully detail the core pillars of an effective AI self-governance program, and more. #AI #ArtificialIntelligence #Litigation https://t.co/s4QMU8plxY

[Eversheds Sutherland Tax @EStaxlaw]

We are delighted that our global #Tax team has been ranked in @IntlTaxReview World Tax 2024 in 7 jurisdictions (US, UK, Ireland, Estonia, Finland, Latvia, Lithuania). Congratulations to the team and the 8 individuals selected as highly regarded/notable practitioners!
#ITRWorldTax