Investor predictions: which tech startups will survive over the next 5 years?

It is telling when more than one investor at the same event chooses to open their presentations with the words of the Russian revolutionary Vladimir Lenin: ‘There are decades when nothing happens, and weeks when decades happen.’

Both speakers went on to explain that over the last three months since the start of the Covid-19 crisis, we’ve seen two years worth of digital transformation. In fact, according to a recent IFS study, 70% of businesses have increased or maintained digital transformation spend amid the Covid-19 pandemic.

This has been manifested by the surge in remote working, video calls becoming the de facto way to conduct a meeting, overseas business travel shrieking to a halt, huge global conferences shifted online — it’s hard to remember any other change in our working practices to have established itself so quickly.

So what does this mean for tech, SaaS and cloud startups? And the more established companies? Will one come out better than the other?

This was the focus of various talks at SaaStock Remote, an event hosted by my company and attended by 3000+ founders, investors and execs in the field of SaaS. For the entrepreneurs their big question was how do we adapt and survive this unprecedented shift in business and social landscapes. For investors it was, which startups will survive? Seasoned speakers from both sides of the investor and entrepreneur fence gave their predictions and the similarities were startling — featuring both good and bad news for tech startups.

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The future is bright for SaaS and cloud

First, the good news. SaaS and cloud seems like the best place to be in business. We’ve already seen extreme winners and losers. Lockdown winners include video conferencing tools like Zoom, e-Commerce platforms like Shopify, professional collaboration tools like Miro and cloud computing like Datadog. Lockdown losers are tied to the offline world: Marriott, United Airlines, Nordstrom, to name a few.

Rory O’Driscoll from Scale Venture Partners gave a data driven keynote which hit us with the stat that ‘the Cloud is already 50% of the software market in 2020’ and it will grow until it eventually dominates the enterprise market completely.

So, it will no longer be Cloud vs. On-premises, which has been the fight at enterprise level for 20 years. Now it’s Cloud vs Cloud.

This is good news if you’re building a communication and collaboration tool, and if your software is enabling the remote work new normal. But what if you’re not riding this wave?

It’s time to stand out

This brings us to the bad news: SaaS and Cloud is the place to be — unless you’re an underperforming startup. Because of the prevalence of cloud platforms, they will need to really stand out. Underperforming startups will be weeded out creating acquisition opportunities for stronger players. Huge companies with cloud based solutions like Microsoft, IBM and AWS already dominate the market leaving little demand for new startups to exploit.

Another of our investor speakers, David Skok from Matrix Partners made this point. He said that if you are underperforming, it will be harder than ever to get funding. You’ll likely see a valuation drop. You could be weeded out, creating acquisition opportunities for stronger players.

While that sounds like bad news for fledgling tech startups, some investors did offer hope.

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Focus on efficiency

Jos White of Notion Capital had some advice for young businesses heading in this direction. He highlighted that there should be more focus on efficiency now than ever before: it’s no longer the time for growth at all costs. Growth + Efficiency = a healthy business. Entrepreneurs need to understand and track inputs and outputs, to grow in a healthy, sustainable, efficient way.

So providing you are efficient, and you are not underperforming, how can you thrive in a soon-to-be-more crowded cloud arena?

Three ubiquitous options emerged from different speakers trying to answer this question:

1. Compete with an existing cloud offering, e.g. Zoom vs Microsoft.
2. Find an opening in the market where cloud penetration is low (this is getting harder as the behemoths are fast moving into new markets).
3. Move beyond the cloud by leveraging current technologies like AI, machine learning and AR, to sit on top of cloud apps.

The final strategy, according to O’Driscoll, is a tech founder’s best bet, but it means planning today for five years from now, and taking huge leaps in imagination and innovation.

What I learnt from SaaStock Remote confirms what I already knew: 2020 isn’t cancelled for those in SaaS and Cloud. On the contrary, it may be the year we’ve been waiting for: – the year that accelerated digital transformation and the year that the Cloud dominates.

As O’Driscoll poignantly declared in his talk: ‘We’re all in the same storm but we are in different boats.’

In other words, none of us can control the current economic conditions the pandemic has caused (the storm), but we can change how we can adapt to it.

Alex Theuma is founder and CEO of SaaStock, a global community for SaaS entrepreneurs, investors and executives

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