Written by James Goodrich, Albany Partners
Recap of last year
As we’re only one month into 2024, it shouldn’t come as a surprise that many of last year’s challenges for both employers and tech talent alike are persisting. These challenges, outlined in our 2023 temp check piece, were driven by the imbalance in the supply/demand for capital, causing inflated valuations to plummet and businesses with high-burn rates to restructure for profitability — or risk shutting down completely.
This has had a profound impact on the talent market: candidates are prioritising stability and valuing cash-in-hand over long-term incentives, and we witnessed an amazing influx of available engineering leaders but a significant shortage of businesses in a position to hire them.
While these dynamics are gradually finding equilibrium, the road to recovery extends into 2024, defining the year to come as one of rebuilding and adapting to the new norm, in which capital has a discernible price and profitability matters.
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Macro trends
First, context. The macroeconomic environment of 2024 is already being shaped by global challenges such as:
- Rapid, stubborn inflation. Although the inflation rate has been curbed as of the end of last year, we are still feeling the remnant effects across the price of food, mortgages and bills. The Bank of England predicts a return to 2% by the end of 2025.
- The beginnings of another war in the Middle East. This has spurred political unrest and significant uncertainty across the global markets. Given we are still in the midst of the war on Ukraine and recovering from the pandemic, labour shortages and a string of climate change disasters, the uncertainty will most certainly persist through the next 11 months.
Who we are
At Albany Partners, we have a uniquely broad perspective of the investor-backed technology space. We speak with hundreds of C-suite tech leaders weekly (across CTO, CPO, CIO/CDO roles), coming from early-stage ventures all the way through to pre-IPO and Private Equity ownership contexts. This also includes interim and fractional leaders; often embedded in several businesses at once, they are incredibly well-informed due to their exposure to the market and deeper networks.
Additionally, Albany Growth, est. in 2021, supports us in building their product and engineering teams underneath the leaders we place.
Our reading on the year to come
Throughout the first month of 2024, in addition to speaking with engineering leaders, we’ve collated insights from conversations with investors, heads of talent, platforms, operators and founders. Here are the emerging trends:
- The tech reset of last year is showing promising signs of stabilisation.
- Investors are placing a greater emphasis on profitability.
- The role of a CTO is changing in light of these new contexts, and engineering leaders need to adapt.
1. Signs of thawing
The total deal value across Venture capital dropped by nearly 50% YoY — from 105.1B Euro to 57.1B Euro. This may seem alarming; however, if you consider this statistic without the outlier boom years of 2021-2022, deal value is up from 2020 by 5.1B Euros, in line with the YoY growth rates of the preceding years. That being said, some domains are faring better than others.
As inflation comes down and interest rate hikes are slowing, the tech reset of last year is showing promising signs of stabilisation. Several investors were in a freeze, pausing deployment of capital —leading to a record-breaking $2.67 trillion in global dry powder by the end of 2023, primarily down to a slowdown in deal-making.
Although funds will have varying time frames, there is an inherent pressure to deploy that capital. It is only a matter of time; however, the thawing process may be a slow drip at first.
2. Capital efficiency is king
“Just a year ago 9 out of 10 VC meetings would be about growth. Today, 9 out of 10 VC meetings will ask you about how efficient your growth is”
Waveup.
More broadly, cash generation will be integral to company survival, and startups will need to rationalise cost bases and increase profitability in order to recalibrate to the tougher funding environment this year.
The notion of a successful engineering team is changing because of this shift in mentality, given the tech function is typically the most significant cost base within start-ups — albeit the most fundamental. For early-stage businesses, low-code tooling and the use of AI code generation will be increasingly leveraged.
Additionally, within a VC-backed context, we expect to see a rise in the use of fractional mentorship. Given smaller, leaner teams are the new norm, VP-level engineering leaders will remain at the helm for longer— giving them time to upskill themselves to suit a more mature business and pushing back the inflexion point at which we would expect to see a CTO brought in over the top.
3. How CTOs are adapting
In line with the above, technology leaders need to adapt how they position themselves to remain aligned with investor interests. Before the shifts we saw last year, most CTOs within the world of VC framed their experience in terms of change of headcount and growth, overseeing significant rapid scale in short periods of time. To remain cutting-edge and relevant, tech leaders are reframing their scaling experience in terms of transformation and emphasising commerciality.
Conversely, we are seeing an expressed interest from top talent in moving out of VC-backed businesses entirely, with the highest interest levels we have ever seen in permanent, interim and advisory roles within a PE context.
This tracks based on market trends we’re seeing. According to Pitchbook, in 2023, deal value was 46% lower YoY for VC, while only 27% lower for PE. Exit value showed that VC was down 71% YoY while staying roughly flat for PE.
Fundraising marks the largest difference: VC was down 39% YoY, whereas PE had a near-record year in terms of capital raised – almost €120 billion. Although these comparisons are based on 2021-2022, which were record years in VC, many feel it’s reflective of a lack of resiliency during times of economic downturn in comparison with PE.
2024 will reflect many of the challenges of the previous year— shaped by capital imbalances and global uncertainties. That being said, promising signs of stabilisation in the tech sector are emerging. We are seeing lasting shifts towards an emphasis on profitability and strategic growth, which are healthy changes for a sustainable investor-backed ecosystem.
Technology leaders are adapting, emphasizing transformation and commerciality, and considering alternate ways of working outside of a traditional permanent environment. Notably, top talent who share concerns for stability are increasingly considering roles in Private Equity. Overall, this year will be one for rebuilding, and success will, in part, hinge on resilience and adaptability.
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