Macro trends (still) favor the enterprise technology sector
As multi-cycle investors and operators, we recognize that the last three years were exceptional rather than typical. You may recall, many of those that invested in the downturn of 2008 were able to realize gains. During the last decades since then, valuations were high and capital were low-cost. Many today have not lived through difficult macro times. This data set from Goldman gives anecdotal support — approximately 55% of Goldman Sachs’ 46,000 employees started at the firm after 2020 — anyone starting a professional career post-2008 has had a very one-sided, right-tail distribution experience. Certain risk-seeking behaviors in the recent decade of near zero rates and available credit were rewarded and now will inevitably create additional pockets of pain. A balance of short-term results, with a long-term historical perspective when making capital allocation and strategic decisions today will pay off in the future.
Alinea remains bullish with early stage technology investments.
“Buy low, sell high” is the basic mandate for a seasoned investor, and we unabashedly say we are “value investors” by heart and training, even at the early stage. Valuations are lower than they have been in the past decade (2), while operator skills are ever more in demand (3). Moreover, with 5–7 years for macro conditions to improve and enable better outcomes for our founders and our investors.
According to Worktech and others — we may be approaching the bottom in 2023, this boding well for funding and innovation. The building blocks for companies are getting cheaper and more available, intersecting with the sectors we focus on which can contribute additional $4–7$T in productivity gains. We see productivity enablement across climatetech, manfacturing tech, financial systems, and internet software and services — with corporate investment rising in order to push operating efficiency and growth.
Founder focus during lean times
Pulling the Operator-Investor playbook that we have developed at Alinea Ventures, from the last 2 major downturns, we share proven
tactics below.
Financial truth-sayers are more important than ever.
The finance team and what they see in the financial story will be importsnt to heed. During difficult times, the CFO is even more critical to practicing financial discipline and running the business by numbers. They will help grow the business while managing risk, through these difficult times. Don’t be afraid to ask for regular information and not be afraid to do the hard work in understanding the numbers. The most financially savvy CEOs will have an advantage over those who didn’t take the time to understand the
financial health of their business.
Cut non-core costs mindfully
Expense management is king — early-stage firms will survive if they are extremely picky about where they invest (high growth areas for 2024 and beyond), and where they cut (rent, non-revenue generating travel, non-core subscription, etc.) It is time to achieve more with less and get back to being scrappy, even if you have ample runway. Learning to instill a revenue-first, financially disciplined operation will bode well — in good times and especially in bad times. The CFO becomes a key partner for many CEOs.
Continue the growth mindset
Fundraising will be difficult and revenue growth may stall. Managing your pipeline and closing revenue will take will take longer, and be more demanding on resources. If the management team can operate lean, then the future of the company will be sustained. On average, 20%- 40% growth rates over the last few years have been adjusted to a muted less than 10%, with margin decreasing and SG&A costs higher as founders invest in the business.
Investments Update
Our team has been investing actively in the last few years. We are excited to share updates from some of our amazing founder teams:
Welcome, a one-stop white-labeled webinar platform, including Welcome Studio, Agenda Builder, Green Room, etc., empowers modern marketers with AI-driven technology to host engaging experiences and scale captivating content. Their platform has been used to host YC’s Demo Days, and after our investment, they have successfully gone on to raise from the likes of Kleiner Perkins and Kapor Capital.
Partsimony, an intelligent supply chain platform, has already successfully gone to market and is now supercharging their business development integrating into the SAP ERP, driven by requests from companies like Honeywell, Mercedes and BMW.
NodeQ has converted Professor Stefano Pirandola’s quantum network solution into a viable commercial product and is in the process of building network-integrated middleware layer for connecting heterogeneous quantum systems
Finhabits is an investment platform powering the wealth growth of the 60+ million U.S. Latinos. To date, the team has successfully onboarded more than 700,000 members, with 90,000 taking their first steps into investing. The team is getting the word out by sharing their newly published wealth report.
If you are interested in learning more about any of these companies, including about their products, clients, pilots, and investments, please do not hesitate to reach out.
Citation:
(1) Charles Schwab, I/B/E/S data from Refinitiv, as of 8/4/2023.
(2) Is This The Most Of-The-Moment Tech Brand? (thestarrconspiracy.com)
(3) Economic Potential of Generative AI: The Next Productivity Frontier (mckinsey.com)
For information only.
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