Prepping for a rebound
CEOs are more confident, returning to capital markets and embracing AI, even as interest rates remain high
After two years of volatility and uncertainty, CEOs are looking forward to better times ahead. And they’re determined not to miss the opportunity to ride a potential economic rebound. In our exclusive survey of more than 110 companies around the world, fielded in December 2023, more than half of CEOs said they plan to raise capital in 2024, and 71% said they’re more upbeat about their company’s prospects than a year ago. A key driver for optimism: the AI revolution.
“Over the last couple of years, founders and CEOs in our portfolio have shown incredible resilience,” said Alex Clavel, co-CEO of SoftBank Investment Advisers. “Many have done tremendous work in a very challenging environment to transform their companies and put them on a path to continued success. As economic indicators begin to move in the right direction, and as the AI revolution continues to accelerate, they are well positioned to seize the opportunity in front of them."
Here's a deeper dive into what's occupying CEOs’ thoughts on the global economy and AI as they enter 2024. (You can explore the full survey results, and filter by region, sector, and stage, via Sōzō Pulse.)
After a couple of years of caution and retrenchment, many CEOs of high-growth tech companies are feeling more positive about the immediate future.
Across a broad range of questions tied to the economy and capital markets, CEOs’ responses suggested a marked improvement. For example, nearly half of CEOs said they are more optimistic about the economy than a year ago, a sharp difference from last year, when only 6% said they were more optimistic. While 26% remain less optimistic than a year ago, that too is a dramatic improvement from last year, when the equivalent figure was 80%.
The responses are especially notable, because a majority were received before the US Federal Reserve signaled that interest rates—one of the lingering concerns for many CEOs—could begin to come down in 2024. That announcement buoyed hopes that the US economy might be headed not for a recession, but rather for a soft landing—the first since the mid-1990s.
But even before that announcement, just over half of the CEOs surveyed said that they expected interest rates to go down in 2024.
“The US has been a bit ahead of other countries, but even around the world, things are improving,” said Tom Davenport, distinguished professor of information technology at Babson College. “I’m fairly optimistic.”
The CEOs in our survey largely share that sentiment. Nearly three-fourths told us they expect inflation will start to recede in 2024. Just one-quarter of CEOs fear inflation will impact their companies, down from 45% a year ago. And nearly two-thirds of CEOs surveyed are betting that the S&P will climb by the end of 2024, outnumbering those who say the index will decline by a factor of 5-to-1.
It’s little wonder then that many CEOs are betting 2024 will be a year for growth.
As the economic outlook brightens, CEOs seem eager to lean in.
Half of the CEOs surveyed say they are planning to raise new funds in the coming year—up from 28% who raised funds in 2023. The return to capital markets suggests CEOs are willing to take risks on capital efficient growth. And they’re doing so despite concerns that fundraising will be difficult.
Indeed, 48% of CEOs say it is harder to raise capital now than a year ago, and 47% cite “access to capital” as a challenge.
The difficulties in raising funds and the desire of companies to do so are both reflected in market data. For example, venture capital funding fell 46% in the third quarter of 2023 from the same quarter a year earlier, according to data from Carta. That means total VC funding has fallen in six out of the past seven quarters. But a recovery may be in sight, with Pitchbook’s 2024 US Venture Capital Outlook report forecasting that “fundraising figures for the upcoming four quarters ending in Q3 2024 should look similar to annual 2020 US VC trends."
It’s no surprise then, that as they seek to benefit from a rebound, companies are proceeding cautiously. The top two priorities for 2024 remain “conserving cash,” cited by 54% of CEOs, and “organic growth and efficiency,” cited by 55%. Yet nearly a third say they plan to invest aggressively in product, and similar percentages plan to grow through M&A and expand into new product offerings.
The CEO of a series C company in Asia, for example, said their top priority was to “acquire human resources and accelerate overseas expansion into America and Southeast Asia.” Meanwhile, a European series C CEO said they were focused on “recruiting and onboarding senior leaders,” and a US series E CEO on “building features in a key sector to gain market share, and improve product quality across major geographies.”
CEOs' guarded optimism extends to the IPO market, with 39% predicting it will fully reopen in the second half of 2024.
One CEO, Avi Golan, says he is “hopeful but unsure” about 2024. His company Oosto—with global headquarters in the US as well as offices in Israel, Northern Ireland, Mexico, and Singapore—identifies security and safety threats in real-time using its advanced Vision AI technology. He remains concerned with issues such as delayed customer decisions that can result in inaccurate forecasting because of continued budget changes. He’s also concerned that those issues may translate into less innovation: “focusing on the basics, the must-haves.” But for Oosto, innovation is key—especially if it’s centered around AI.
The introduction of ChatGPT late in 2022 changed the game. Portfolio companies, many of them already steeped in artificial intelligence, embraced generative AI in different ways.
That embrace showed up in budgets: 48% of CEOs said their spending on AI in 2023 grew up to 100% from a year earlier, and another 25% said it more than doubled. Sixty-one percent of CEOs say they expect growth in AI budgets to continue, at varying rates, in 2024.
“We’re a very deep AI company already,” Golan said about Oosto. The company is leaning into generative AI for development and uses the technology for image data and video analytics.
The enthusiasm toward AI is broad-based, with three-fourths of CEOs saying it has created opportunities to operate more efficiently and almost as many saying it can improve their products.
But with a technology so new and so powerful, many CEOs continue to grapple with a nagging question: Where can AI be most effective? Two-thirds of companies said that was the biggest hurdle to harnessing AI’s full potential, surpassing other concerns such as cost (31%), organizational buy-in (18%), or access to talent (34%).
IT professor Davenport said the questions are not surprising, given the stage of AI deployments across the industry. In a recent survey he conducted for Amazon’s AWS, the bulk of the activity around generative AI was happening at the individual and department level. In addition to that, companies were doing a lot of experimentation. That’s a good thing, he said, “As long as there’s some path toward production. You’ll get value if you put these things into production. But that’s going to take time.”
Indeed, as of now, just 1 in 10 CEOs we surveyed told us that AI has fundamentally changed their business.
“It may take years to build up capabilities with generative AI,” said Golan. “But once you get past the hype, you’ll need to prove that you can actually generate revenue. The big dilemma these days for innovative organizations like Oosto, compared to three years ago, is how much to invest in tech innovation versus driving growth. AI companies need continued innovation. But if you need to concentrate on growth, you may have more limited resources—and that might impact your required ‘AI revolution.’”
Davenport concurs, advising companies not to worry too much about showing results—yet. "For the first year or so that you’re exploring the technology, I wouldn’t worry about ROI so much,” he said. “But ROI will need to come at some point.”