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Tech Trends 2023 – Through a Due Diligence Lens

Tech Trends 2023

We are well into the year, so it’s time for the (retrospective) Tech Tends of 2023. It’s becoming increasingly apparent that the tech landscape is unlike any other year. We share our unique vantage point in tech due diligence offers. It’s a big change from last year, when tech firms struggled to find people and afford them.

A New Pace in Deal Negotiation

Gone are the days when due diligence was a whirlwind of activity crammed into a fortnight. We’ve noticed deal negotiations are protracting, resulting in a less frenetic pace of diligence. 

This change in speed often offers us an enriched lens through which we scrutinize a target company. No longer confined to a high-pressure environment, we can better evaluate firms through a multi-dimensional perspective. 

Extended timelines allow us to identify nuances we might have missed, and quite often, the deals are taking so long that the firm hits a roadblock or misses its forecast.

Quality Takes a Dip

The once-ceaseless stream of high-calibre tech firms has waned, as evidenced by an increasing number of our reports flashing red flags—advising against investment. 

Whether it’s code quality, cybersecurity, or human capital, the underlying tone suggests that we’re in an era where lower-quality companies are up for evaluation. 

This may result from higher-quality firms biding their time for more favourable market conditions.

International Investment: A New Frontier

You might want to cast your net beyond domestic waters if you seek quality. We’ve witnessed a significant uptick in investments directed towards the U.S., New Zealand, and Australia. 

Language barriers are less of an issue in these English-speaking nations, and the quality of the targets often exceeds what we’ve observed locally. 

We’ve seen that investment opportunities in these regions are high-quality and potentially less competitive, opening up exciting new avenues for investors.

Remediation Times Stretch Out

We occasionally operate a two-phase due diligence approach—identifying issues for remediation before market entry. And we’ve noted elongated remediation timelines. 

While it’s tricky to pinpoint an exact cause, this trend seems to be another piece of the puzzle explaining why deals are taking longer to close.

Silver Linings

Despite the prevailing headwinds, there are bright spots to acknowledge. Firms driven by regulatory or governmental frameworks exhibit resilience and appear relatively recession-proof. 

And let’s not overlook the inspirational recovery stories emerging from the tech sector—companies that have shown remarkable agility and technical prowess in navigating unprecedented challenges.

Additionally, we’re observing financial models that are more grounded, with realistic growth plans and an emphasis on profitability. This welcome change makes the due diligence process less about tempering over-ambition and more about evaluating a firm’s genuine market potential.

The Road Ahead: Navigating Tomorrow’s Challenges

As we roll into Q4 2023, it’s crucial to remember that every challenge presents an opportunity for growth and innovation. The shifts in deal pace, dip in quality, and emerging international arenas all indicate that the rulebook is being rewritten. Adaptability and foresight will be your strongest allies in a climate where change is the only constant. And it’s no secret that moderation and profit are the current buzzwords.

The stretched timelines for both negotiations and remediations are a clear signal: thoroughness and strategic depth are becoming more valuable than speed and immediacy. While there’s a certain thrill in racing against the clock, the more deliberate pace allows us all to be more meticulous, judicious, and perhaps even more innovative in our approaches.

As we look to navigate tomorrow’s challenges, the investors and firms that remain agile—those willing to adapt their strategies and pivot when necessary—will likely find themselves leading the pack. The tech sector has never been a realm for the complacent.

To win in this evolving game requires a willingness to adapt, to re-strategize, and above all, to understand that due diligence is not just a task to be completed but a continually unfolding process that can make or break an investment.

And so, we stand at the cusp of an exhilarating journey. With a roadmap powered by due diligence insights, we’re not just surviving the tech landscape of 2023; we’re thriving in it.

And if you do want a well-crafted, and I assume well-resourced report on the year’s trend, I refer you to the excellent CBInsights Report for 2023.

Hutton Henry
Hutton Henry
Hutton has worked with Private Equity Portfolio firms and Private Equity funds since 2015. Having previously worked in post-merger integration for large firms such as Ford and HP, Hutton understands the value of finding issues prior to M&A deals. He is currently the founder of Beyond M&A and provides technology due diligence for VC, PE and corporate investors, so they understand their technology risks before entering into a deal.

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