For at least a decade low inflation, low interest rates and a benign macroeconomic environment have fuelled a bull market in everything as investors searched for yield. Private and especially technology markets particularly benefited as investing in future growth and returns became more attractive on a discounted cash flow basis. In 2022 the successive blows of the COVID plague, the war in Ukraine and the re-appearance of inflation finally put an end to the party. With rising interest rates and an increasingly complicated geopolitical environment what might we expect in 2023?
First, expect more bad news in 2023 as the macroeconomic impacts of the changes in the last year are still working their way through the system. Consumers are still adjusting to rising inflation and higher interest rates and they will be feeling increasingly stretched this year. Households in many markets were flush with savings after the pandemic but soon job losses and a rising cost of living are going to have an impact on spending. Corporates are already starting to cut their spending and focus on areas with the highest impact, as evidenced by the rising tide of announced layoffs.
In the public equity markets technology valuations rapidly adjusted by 30% in 2022 but the ripples are still working their way through the private markets. In 2022 many companies avoiding raising new capital and that allowed many funds to avoid marking their portfolio to market. That will no longer be possible in 2023 and eventually reality will have to catch up to holding values. There is a lot of capital out there to prop companies up and postpone the reckoning but it will come and we will also see more high profile company failures in 2023 and beyond – FTX will not be the last one.
What will we see more of? Companies will be focused on ROI, it’s time to dust off those calculations and show near term payback from what you are selling. Capital efficiency and a focus on margins over growth will cycle back into favour as it does every time the market turns down. Don’t expect investment money to subsidise your grocery deliveries anymore! Instead expect to see a resurgence of solutions helping consumers, corporates and governments to save money and increase their efficiency.
As always, technology will continue to be a key driver of productivity gains and I expect it to remain a key focus area for investment and purchasing. In all markets, faster, more efficient ways of solving problems are going to be in demand. Even in recruiting and talent management we have seen portfolio companies such as Hackajob continue to see strong sales as they are a more effective and efficient way to recruit, develop and retain technical talent. Helping companies save money and do more with less will be the winning sales pitch in 2023.
In 2003 when I started work at the tail end of the dotcom bust there were many great startups and scaleups that struggled to get the capital to grow. Looked at from two decades further on it was a great time to be investing with many startups having developed lean, laser focused sales motions honed in a period where all spend was scrutinised for effectiveness. Focus this year on what really matters for your business to survive and grow efficiently and I’m sure in ten years time you will be looking back positively at the changes you made now.