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Charting a course through market volatility 

Let’s face it, the technology industry is taking a beating. On the back of aggressive interest rate hikes, looming recession fears and geopolitical turmoil, the industry has been forced to quickly adapt to a new reality. This reality is manifesting in layoffs (now well into the hundreds of thousands), paltry late-stage deal volume, and an IPO window that remains firmly shut. 

*Source: Crunchbase, Global Venture Dollar Volume Through Q2 2023

In the midst of the carnage – right around the time companies are scrambling to find a way to hit numbers – the largest US banking provider goes insolvent, and we seem to be on the brink of a banking crisis. Insult to injury is an understatement.

Whether you’re a pre-revenue startup or a billion-dollar behemoth, expectations are being reset. As the cost of capital increases, the risk appetite to invest in businesses seeking long-term investments without certainty of cash flow or tangible assets are hit the hardest (venture capital anyone?).

Short term vs long term

Of course, not all companies that thrived in the last two years are going to make it out of this current environment. The short-term pain is rough and could get a lot worse. For those that are able to get through this period in time, whether they be early-stage startups or investors, thankfully, the long-term trends are still favourable.

For one, digitization is not slowing down. We’ve lived through a two-year period of “forced digitization,” and while digital trends have fluctuated since 2020, the world’s appetite for innovation remains strong. According to a recent IDC survey, more than half of corporate tech managers in the U.S. expect their tech spending will stay the same or increase this year compared to 2022, even though 82% said that they expected a recession this year. In January, Gartner projected that global enterprise spending on software would total $4.6 trillion in 2023, a 5.5% increase from last year.

*Source: Statista, IT spending forecast worldwide from 2012 to 2023, by segment

Today, every business regardless of industry or size needs technology to run its day-to-day operations – and the competitive need to embrace technology is only getting stronger. While boom and bust cycles will always persist, the tech sector has also come a long way from its fledgling days during the dot-com boom.

It’s hard to see these long-term trends though when looking at the public markets. For example, the IPO window remains shut mostly due to how quick and severe revenue multiples dropped in the technology sector.

*Source: PitchBook, US and Canadian Headquartered Technology IPOs, min raised $50M US

*Source: Cloud index of high growth SaaS stocks; source: CapitalIQ

Without a doubt, these are painful charts to look at and help to put into perspective the turmoil that is trickling down to earlier stage technology companies. In 2021, over $100 billion in IPO proceeds were raised by US and Canadian-headquartered businesses – compared to less than $2.5 billion in 2022 and 2023 combined. As for public market valuations, high-growth technology businesses are down roughly 70% from their peak in early 2021.

However, in times of short-term distress, it’s important to remind ourselves of the long-term trends. If we zoom out beyond the past three years, some things become apparent. As we heard so often, COVID was an unprecedented event on a global scale. In hindsight, it shouldn’t be surprising that market dislocations occurred during this time. We believe the long-term opportunity to invest in technology is still apparent when zooming out.

Using the same index proxy, but zooming out to 2010 as our starting date, we see a different picture.

*Source: Cloud index of high growth SaaS stocks; source: CapitalIQ

We currently find ourselves slightly below the long-term median valuation for high-growth technology businesses. When zooming out, it is also apparent how dramatically COVID distorted the trendline. And what about long-term returns investing in these businesses?

If you invested in a basket of high-growth SaaS stocks in 2010, today you would be down roughly 50% from peak, but you still would have 10X’d your investment. This return is related to the compound growth in revenue (and for the best of breed, free cash flow) that these businesses have been able to generate over time.

Whether you are an investor or an operator, continuously challenge your assumptions – especially when the market is punching you in the face. At the same time, it’s equally important to base your assumptions on long-term factors versus short-term noise. For us, as investors who back B2B SaaS and Health-Tech ventures, we fundamentally believe that the continued digitization of business and legacy industries will result in profitable opportunities.

No matter how strong the long-term trends are, the only way to capitalize on them is to keep alive. To do so, growth cannot be the number one priority. A company that adopts a relentless focus on cash, makes the hard decisions to extend its runway and is pragmatic about valuation expectations puts themselves at an advantage to others that are slower to adapt. Smart investors understand the difficult times we are in, and with ~$300B of VC dry powder, there will be capital for those that embrace this new era.

Scrappy Resilience

So how does one best navigate through this uncertain period? We think the answer lies in scrappy resilience. Scrappiness and resilience are intertwined as resilient organizations are flexible and adaptable to external forces. Although an organization can exhibit resilience in various ways, business model resilience is crucial today. We think about business model resilience in B2B SaaS across two vectors: strength of value proposition and the strength of unit economics.

In bull markets, every company is looking for a competitive edge that will help them grow quicker or out innovate their competitor. Because of this, in good times, software products can be sold opportunistically to budgets that are flush with cash. Easy sales can result in less rigor on truly understanding why your customers are buying and quantifying their ROI.

When markets dry up, and your resources get scarce, it’s time to assess how you’re stacking up to your original value proposition. Most founders start their journey out of an obsession with solving a problem. As time passes and companies grow, the raison d’être that brought a company into existence can get skewed by the consistent pull of different stakeholders that all have varying incentives. This can result in product bloat as the core product becomes weighed down by unnecessary features.

For B2B SaaS companies, your value proposition is directly tied to ROI – return on investment. It’s more important than ever that a solution’s ROI needs to be measurable and tangible. For us, tangible ROI means only one of two things: a solution that either increases revenue and/or decreases costs. And in today’s market, a tangible cost reduction solution that is sold to a CFO will outweigh a revenue driver that is less certain.

To quantify ROI, this is the time to double down on engagement with your customers. Have their priority problems changed in this environment? Product-market-fit is not a binary outcome – once found and never to be lost. Your customer’s problems of yesterday may have significantly changed. Your champions that helped you close a deal may no longer be influential or even with the company. A scrappy startup mentality involves being open to change and willing to pivot depending on the market. Today, companies of all sizes need to find ways to get scrappy with an unrelentless focus on solving quantifiable problems.

Another way to build resilience is cash management. It seems obvious to mention, but a company that operates at breakeven, or better yet, is profitable, will be more resilient in different market cycles. This does not mean a company should not invest in growth or go unprofitable to gain market share when the time is right. However, any future investment comes with risk – and too often in a bull market, investors and operators lie to themselves about the risk they are taking on. Running a company to the next growth financing milestone holds a company hostage to the fundraising market. And as we have just witnessed, KPI benchmarks for the next round can change overnight. Raising capital is not the goal, building an enduring business should be.

Jane Software is a great example of what this resilience can look like. Just two years ago, when unicorns were seemingly cropping up every week, Jane Software positioned itself as a camel. Its playbook was pretty simple: spend within its means, do more with less, and prioritize profitability. In the frenzy of 2021, while other companies splurged on marketing and hiring sprees, Jane favoured a more measured approach to growth. Revenue first, hire later. Fast-forward two years, and as many of its peers are shedding jobs, Jane has made hundreds of new hires, and has more than doubled its annual revenue since 2021.


Make no mistake, it’s a tough market for anyone currently working, investing or operating in the tech sector. Things may improve soon, or things could get worse. Regardless, the long-term trends are on our side and there will be another bull market. For the time being, the most prudent course of action is to double down on solving real problems, embrace scrappiness to navigate short term turmoil and treat cash as a precious resource. Undoubtably, those that do will be better prepared to reap the rewards on the other side.

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