What’s The Deal With Tech Valuations?

Welcome to The Margin, a newsletter designed to keep you on the leading edge of monetization.

In business, the difference between being ahead of the curve or a late adopter is anything but marginal. The Margin aims to be the most useful, timely, and incisive ping that hits your inbox all week. It includes critical research and analyst insights to inform short and long-term decision making.

Here’s what you need to know:

Research spotlight | The Global Tech Market Is Bigger Than You Think.

This research note provides quantitative data to support industry truisms like “software is eating the world” and “every company is a tech company.”

Most tech market size estimates don’t consider corporate spend outside the formal IT budget. Total tech spend is larger – and growing faster – than most estimates assume.
We project that global tech spend will grow at a CAGR of 7.75% over the next 5 years. Contrary to negative headlines, investment in technology far outpaces overall GDP growth.

A story you can’t afford to miss | What’s the deal with tech valuations?

In 2022, VC fundraising fell by 65% and the number of venture deals worldwide fell by 56%. However:

Early-stage (Seed, Series A & B), AI/ML-focused, and national industrial tech businesses are still getting funded.
Companies operating at break-even and solving business-critical problems (like monetization) remain attractive to investors.
Series C (and later) companies face down-rounds at best and existential choices at worst. Buyers need to reassess their applications providers with a keen eye on viability.

On the horizon | Agile Billing Use Case Notes™

MGI Research is currently evaluating 45+ vendors in the Agile Billing market. As part of the rating process, we defined each billing vendor’s ideal Use Case.
Scoring well on a third-party evaluation might mean a company has a robust product or go-to-market strategy, but one size does not fit all.
Use Case Notes help buyers narrow their focus to a select few companies that cater to their specific needs. They also help vendors sharpen their ICP, identify core markets, and differentiate their offerings.

Now let’s dive a bit deeper.

Research Spotlight

The Global Tech Market Is Bigger Than You Think

The forecasting team at MGI Research recently put together a bottom-up estimate of the global technology market. The results are surprising, though they may reinforce what some insiders have long suspected: the global tech economy is larger – and growing faster – than most analysts’ forecasts assume.

Zoom out | MGI’s estimate includes IT budgets, consumer spend, and, crucially, the departmental spend outside of explicit IT department charter and budget.

Finance, product management, and customer success teams (among others) buy technology too – but their spend is not captured by most top-down projections.

The intrigue | Our latest forecast confirms that global tech spend is growing faster than GDP averages and continues to expand its share of the economy.

The report also details various headwinds (recession, inflation, geopolitical crises, labor shortages, and more) and tailwinds (digital gaps exposed by the pandemic, growing reliance on tech in everyday products and services, et al)..

On the Horizon

In addition to the upcoming batch of 360 Ratings™ in Agile Billing, we will publish new Use Case Notes™ on 45+ noteworthy billing vendors.

The Use Case Note describes the ideal customer profile for a given solution. It helps prospective buyers understand a product’s “best fit” by identifying the target customer size, business models, selling regions, tech ecosystems, sales channels, primary verticals, and more.

The aim is to help interested parties quickly and confidently narrow the list of suppliers that could meet a particular use case.

Who should be excited | Tech buyers seeking focus and clarity as they comb through the crowded agile billing market. Billing vendors looking for ways to rise above the noise and differentiate their business.

Look out for new Use Case Notes – and new 360 Ratings – in April.

In the meantime, check out our most recent Use Case Notes:

A Story You Can't Afford to Miss

What’s the Deal With Tech Valuations?

Tech valuations are crashing. In the last year, the Nasdaq Composite fell by a third, VC capital flow plummeted to the lowest level in eight years, and fundraising deals decreased by 56%.

What does it all mean? Let’s break it down:

VC firms attribute the crash to underestimating inflation while overestimating the post-pandemic boost.
Older VCs and hedge funds are prioritizing younger startups, partly due to market volatility creating risk for later-stage firms hoping to go public.
Vendors selling “must-have” products and services – such as back-office monetization vendors – are less threatened than those in other sectors.
“Generative AI” remains the trend du jour, and companies that incorporate it will continue to receive venture funding. Customer spending will not flow as easily.
Politically strategic startups – such as green technology, semiconductor firms, and advanced manufacturing – will pull investment capital. In 2022, 8% of large VC firms’ investments went to climate technology – up from 2% the previous year.
On the other hand, geopolitical turbulence has cooled investment in some foreign markets – VC titans invested 6% less in Chinese startups in 2022 than in 2021. 2023 spend in China will slow further.
A significant portion of the semiconductor industry is based in Taiwan and China – therefore, chip firms based elsewhere will be positioned for an influx of cash.

The bottom line | Early-stage companies are still getting funded. Series C and later are in a world of hurt.

There was a massive influx of non-traditional tech funds over the last five years – but that’s evaporated.
Later-stage companies are attempting to marry themselves off, but suitors are waiting for valuations to bottom.
There’s a wide – and growing – gap between what companies think they’re worth and what the market is willing to pay. The race to profitability is on.