Remember when everyone thought that the 2020s would be the roaring 20s all over again? It really did seem like that at first, especially when it came to tech – investors poured a whopping $630 billion into venture capital-backed businesses in 2021 alone, double the investment levels of 2020.
The sales tech industry benefited immensely from this trend, with investment increasing from US$1.8 billion in 2020 to over US$4.3 billion in 2021. Interest rates were low, making it easy to borrow debt, and cash burn was high, driven by companies attempting to scale quickly to pursue market share. Tech valuation soared, leading to more investment – it seemed like the party would never end.
However, the roaring 20s everyone hoped for might be over before they even began. Continuing Covid lockdowns in China, the war in Ukraine, and lingering supply chain issues have driven inflation high and commodity prices higher (see: your local gas station.) And according to a recent article in Forbes by a Forrester analyst, the resulting economic and socio-political climate has resulted in both challenges and opportunities for investors, providers, and buyers of sales tech.
Challenges and Opportunities for Sales Tech Investors
Both venture capital and private equity funding have slowed due to the recent changes in the investment climate. Fund managers, more concerned with risk reduction, profitability, and cash flow, are becoming more discerning with their investments. This means less sky-high valuations, and more difficulty raising money for sales tech startups.
But as the number of deals decreases along with competition between funds, investors have more influence in the companies they support. They’ll still want to invest in sound companies, but investment terms will be more minutely negotiated than before, given the increased risk.
Challenges and Opportunities for Providers In Sales Tech
Not only will sales tech providers face bigger funding challenges in private markets, they will likely see a decrease in demand for their products as their clients experience the same economic squeeze. Growth expectations will need to be reevaluated, as finding and converting customers may take longer. Operating costs may be squeezed as well, as startups attempt to expand their cash runway to 18 to 24 months in the hopes that the funding climate will be more friendly by then.
However: experienced sales tech providers, flush with cash from last year’s late-stage funding rounds, may be able to extend their cash runways while eyeing previously unavailable acquisitions. Both Mediafly and Clari have completed acquisitions (ExecVision and Wingman) this quarter, demonstrating confidence in expansion of certain platforms. It’s expected there will be more M&A (mergers and acquisitions) activity in the coming quarter.
Challenges and Opportunities For Buyers Of Sales Tech
In a climate where B2B companies, both public and private, will face financial challenges, the pressure will be on for owners of sales and marketing tech to demonstrate the value of the products they have purchased to company leadership. This means that those in charge of buying (and managing) tech in these functions will have to demonstrate the value and ROI to their management teams, as companies eye cuts to redundant or unnecessary purchases.
On the flip side, this uncertainty creates an excellent opportunity for tech revenue and stack owners to assess and optimize their tech portfolios. The useless (or overpriced) tools are likely to get cut, while the tools that provide real value will remain – not necessarily a bad thing for overworked sales reps who are tired of being forced to use redundant tools that don’t offer them much help.
Sales Tech Demand Shows No Signs of Slowing
None of this changes the fact that sales tech is still in demand, but there is likely to be a shift to a “do more with less” attitude, especially in B2B organizations.
Providers that can clearly communicate their value proposition, adapt to changing environments, and solve challenges for customers are in a good spot. Meanwhile, the tech companies that have oversold their capabilities or overextended themselves thanks to easily accessible investment funding are likely to struggle to come out safely on the other side.