flinder CFO Dave Eaton offered his perspective on how the tech & SaaS sector has evolved over the last 12 months, what looks likely in 2023 and some guidance for helping founders keep the road ahead running smoothly.
What changes and possible challenges has the tech & SaaS sector seen over the last 12 months?
I think there are a few key aspects that have changed. Looking at things from a funding perspective, we have seen a tightening of the belt in venture funding. 2021 was a bumper year for most forms of tech funding as the world bounced back from the COVID -19 challenges. This time last year capital was easier to come by for a young tech business, for example, who were looking for early-stage funding and valuations were a bit lofty.
Now, we are seeing a normalisation of valuations. Companies over the last six months have found it tough to raise funds when they get beyond friends and family in the pre-seed stage. Investors are now tightening criteria and founders are finding it harder sell their vision when it is unproven.
There is also a good deal of undeployed capital too, so you feel it needs to go to work at some point soon. This ‘dry powder’ is only being eaten up by inflation so needs to be deployed. EIS funds will also be under pressure to deploy capital before the end of the tax year so there could be a release of funds in that space in Q1 2023. Companies a little further down their journey, hitting milestones are still able to secure follow on funding as investors look for more of a known quantity.
As VC funding is more challenging at the moment, revenue-based financing (RBF) is seen as a really good option now. Companies like Pipe and Uncapped, who focus on this area of financing, means there are other alternatives for business now that VC funds are harder to come by.
Marketing spend is now really critical with consumer spending tightening. As trading becomes more difficult, there is a temptation to cut back on marketing investments, but this must be assessed carefully. Businesses need to be critical about what their metrics are looking like. All eyes should be on data as it will be more important now than ever. Having a robust data model will put you in better stead which is part of reason we’ve developed our data analytics platform.
What potential trends do you see for 2023?
I still see a shift in how people market to consumers now that people are tightening their spending habits. Many businesses will need to be thinking differently about how they approach their customer acquisition strategy.
I think there will also be a number of challenges in the employer/employee relationship. With soaring inflation, wage pressures will continue (as we see with the current strikes) and employers have difficult decisions to make on pay and how to keep their people happy. Good people will be at a premium. So, there will be the need to pay appropriately. Although recession does equal layoffs at the moment, quality talent is hard to find in tech and SaaS so this dynamic will be a real challenge.
What companies should we be watching in the next year?
As I mentioned, businesses like Pipe and Uncapped who offer revenue-based financing options will be interesting to follow in the months to come as it’s an alternative source of financing that may become even more attractive to businesses seeking funding.
Top advice for tech & SaaS businesses?
Plan early as things will take a long time. The route might be different than expected, so be nimble and think of other solutions.
Know your runway really well so you can adapt and change if needed. Always have your business data at your fingertips to always stay on top of where your business is at.
Pay for good talent – it’s easier and cheaper in the long run to keep the talent you have.
It’s been a tough year for a lot of founders, take time to reboot and get some wellbeing in your life.
Set your budgets and targets for 2023 if you’ve not already done so. Know your goals to strive for and have a yard stick to measure against.