Predictions for 2023, a Pivotal Year In Tech
The road ahead in 2023.
Katie Rhead
This year we’re celebrating our 25th anniversary at Thomvest Ventures. We’ve had the good fortune to be an active investor in both the worst of times and the best of times, including the dot-com crash as well as the Global Financial Crisis. This past year has certainly had its share of noteworthy events and surprises. Based on what we’ve seen happen in the past quarter century and looking forward, here are our six predictions for what we are expecting to unfold throughout the course of 2023:
The return to higher interest rate levels will work its way through the broader venture ecosystem. Valuations and other metrics will continue to fall until the second half of the year. We expect this will become increasingly painful at the employee, company, and investor levels. We should also realize the higher rates we see today are a return to post-war norms rather than an exception. Today the 30-year treasury yields 3.6%; the average yield over the last 50 years is 6.3%, so we are still well below the average in the previous 50 years. This downturn will reinforce a shift to remote work for many roles within companies. We expect layoffs in the tech sector will continue throughout the course of the year, so the question facing many companies is where to reduce staffing. As startups hired remote workers, many also paired that with salaries that varied somewhat by geography. Companies this year face a dilemma: Should they retain employees in headquarter locations such as San Francisco or New York that come into the office but are typically higher cost, or should they opt for lower-cost, remote staff? One of the lessons of the dot-com bust was companies in the SF Bay Area kept salaries levels where they were but cut the number of such employees to reduce costs. This time around, companies can do both – minimize staffing and lower their average salary levels – if they embrace a remote-first model. We expect that roles such as sales, support, and individual contributor roles will permanently shift to remote. We’ll see a surge in M&A. The skyrocketing valuations in the private markets and the option to go public via a SPAC over the last two years left many would-be corporate acquirers on the sidelines. The drop in valuations in public markets and the ensuing drop in valuations for many startups will bring pricing back in line. With this, we expect a wave of consolidation led by corporate development teams and stronger startups looking to expand their product suites. “My balance sheet is more enduring than your app” will be one of the themes of 2023. We’ll see some surprising company failures. Similar to what we’ve seen in past corrections, expect to be surprised by the demise of some formerly well-funded companies. Today we have sites such as layoffs.fyi that track employee layoffs. In the dot-com bust, the go-to site was f****dcompany.com; tracking the “Dead Pool” list of presumably walking-dead companies was one of the leading (and depressing) water-cooler topics of the time. We expect to see memes created reflecting this same zeitgeist, but with an added twist this time of integrations into sites that enable the hiring of employees. The no-code + generative AI era will bring the next significant tech transformation. We’ve seen a jump in the number of low-code/no-code startups (Gartner identified several hundred such startups in a report from a few years ago). We’ve also begun to see a flurry of activity in funding for generative AI companies. We believe that the combination of the two will have tremendous power, enabling individual creators to create not just text or pictures but websites and workflows that optimize user experiences in a more systematic way. We’ve already seen companies such as Jasper.ai that use AI to help craft blogs, and the rapid spread of ChatGPT is testimony to the power of such technologies. This has gained so much traction that we now find ourselves gauging whether content we read on a given site or social media post is truly authentic or is an ‘algo-post.’ We expect to see the next iteration of such companies that operate not only at the content creation level, but at the website level, optimizing not only text and images but also the orchestration of the customer journey itself. We’ll see the emergence of the next big company. Industry-defining companies such as Cisco, Google, and Facebook were built during the worst economic times. We expect this pattern will repeat itself in this downturn. Our hunch is the next big thing will be a company heralding the convergence of no-code and generative AI. Where the three companies above all grew in the Valley, we’re less certain this time around the next big thing will be based in the Valley. There is a reasonable chance such a company could be built in one of several geographies where there is a strong focus on AI tools, such as in China, Europe, or in other parts of the US (outside of Silicon Valley). .
The past year has certainly brought its share of surprises, but the tech downturn is not one of those – many of us felt that the era of historically low interest rates had run its course and were waiting for a downturn to happen. Now that the correction has begun, we expect to see a similar level of pain and change as we saw after the dot-com and Global Financial Crisis. We’re also looking at the above trends to see where we should be investing at this point as history has also taught us that the most enduring and impactful companies arise from times such as these, and that now is the time to jump on such opportunities. Whether as an investor or entrepreneur or employee, now is the time to be on the lookout for the next wave of innovation to unfold and an era-defining company to be built.
