Notes on the tech recovery
Time to think about the tech recovery. More opportunities for tech to solve bigger problems. What will change? Here are my notes...
Hello again. I am rebooting this blog and the whole Sunstone business. The trigger for starting again is the tech recovery.
One simple principle I have learned over many years. Change is the mechanism that drives economic growth. So change creates the best business opportunities.
Right now, you may be thinking that change is a bad thing, especially for tech. All the news seems bad. Layoffs, down rounds, insolvencies, fire sales, even a tech specific banking crisis called SVB. This doesn’t look much like a tech recovery.
I have neither the resources nor the brains to give you an in-depth analysis full of charts and numbers. So why do I think the tech recovery is already underway? Here are my thoughts and observations.
Notes:
Tech was counter cyclical during the covid years. Lockdown fueled a fire that was already raging, leading to an out-and-out bubble. Just as everyone else was recovering, that bubble burst. Tech was already nearing the end of a boom, so the crash was even harder.
We are in the early stages of the changes flowing from the covid pandemic. Economies are fragile across the world. Wars and conflict abound. Democracy is in retreat. Decoupling, trade restrictions and maybe a new cold war create further risks. Tough times but changing times. That still means opportunity.
There is no doubt more bad news to come in tech. More job losses, VC investment flat or even still falling. More companies, VCs and ecosystem supporters will die. Clearing out the dead wood.
Remember what you see in the news happened yesterday. Forecasting is a linear game. Experts, pundits and the media predict tomorrow by extrapolating the past. So you need to look elsewhere to spot the inflection points.
The early signs of recovery are there. There has been a surge in new companies formed in the US. Some VCs are overpaying for seed rounds in promising startups. Stock prices for the tech giants have recovered strongly. ARM is the first big tech IPO success since the SPAC boom.
New ideas are emerging. Generative AI is driving the first hyped technology of the new cycle. As noted below, some commentators are talking of new investment models and new business models. These may not come to pass exactly (or even approximately) as predicted. Thinking about new models shows that innovative minds are forming ideas. Ideas built on change will fuel the next wave of growth.
Untapped potential. Since the iPhone launched in 2007, tech has transformed the lives of consumers and brought billions of people online for the first time. Businesses have been slow to change. There are a few different indicators here. So its not possible to gauge the extent of business change with any precision. My guess would be that 10-20% of businesses are truly digital. The UK and Europe are at the low end of that range. There are huge opportunities to take proven technology into new markets.
“One of the lessons I, along with many other founders and investors, have learned in my roughly 15-year journey in SaaS investing is that most businesses adopt new technologies at a painfully slow pace.”
Christoph Janz, Point Nine Ventures
Even more opportunity exists. The tech recovery will disrupt industries that are mainly untouched so far. I would pick out healthcare, pharma and financial services as three sectors where tech is going to sweep away the old models. That will be good for everyone.
I hope and expect that tech will take a lead role in driving and delivering long-term changes. We need tech to tackle climate change and deliver the next energy transition. Demographics and governance also demand real change. Governments are not going to fix these things.
Some of my reading:
Christoph Janz asks Will Ai accelerate vertical SaaS adoption good, not least because he highlights how far business adoption of tech still has to go
Startup extinction season is coming Business Insider - not a substantial source but basically true
Number 5 in this set of charts captures the VC reset nicely Digital Native - good charts about things that have happened
Great to see Nicolas Colin back with European Straits Startups the Door is Closing - Some ideas about a different investment model. Not sure the Peter Zeihan tech trends he uses make sense but thought provoking analysis
Two articles from Hunter Walk Great Time to Start a Company, Tough Time to Be Running One - nails the balance between the start of the new era and the death of the old one
Follow up post why VCs are overpaying for seed rounds - a great indicator of the recovery
End note:
My plan is to post fairly regularly in this general format. Something to think about, but no conclusions or advice. Many posts will be quite rough. At some point I have realised my notes are my writing, so that is what you will see.