By Sascha O'Sullivan
Big tech is facing a moment of reckoning.
Sky high valuations that seemed limitless have normalised and the premium that public tech stocks once held over the rest of the market have been largely erased. We’ve seen a spooked market fuel talk of a tech stock unwinding, but the reality is that many of the companies most impacted were likely overvalued. The recent corrections will shake out the companies that have relied on hype and FOMO (also known as fear of missing out) rather than strong fundamentals and robust business models.
But we can and should still be excited about London’s technology companies. Even in the midst of falling tech valuations, there are still pockets of huge opportunity.
Almost five billion people – 63 per cent of the world’s population – have access to the internet, with 192 million additional users joining them each year. On average, these internet users spend almost 7 hours each day online, consuming huge amounts of data. A pocket of opportunity lies in the next generation of technology businesses in the capital that are building the future of digital applications and tech infrastructure. It is the companies in these tech sub-sectors, not the ones you see in the headlines, which are the most resilient to market shocks in the short term and that have the potential for long-term growth and value creation.
Here’s an example you may not have heard of: “serverless” technology. Whether you’re watching the Euros on your iPhone or digging into your emails, the likelihood is that the data is being served to you through cloud infrastructure.
Serverless technology enables a company to outsource both infrastructure and its code execution to a cloud provider, such as Amazon, IBM, or Microsoft. It saves time and resources so developers can focus on new products and services.
The serverless technology market is currently worth $7.29bn and is expected to reach $36.84bn by 2028. There is also an entire tech ecosystem being built around it, helping developers to resolve incidents and performance bottlenecks quickly.
Regardless of market conditions, you still need brave, innovative, and fast-moving companies to challenge the status quo and take advantage of new trends. London is home to many of these companies. Within our own portfolio, we’ve seen the likes of Ably – who are building real-time notification infrastructure for the internet – deliver billions of messages to more than fifty million people every day for companies including HubSpot, Verizon and Bloomberg. APEXX Global’s payment systems aggregator helps online merchants – including Asos and Ryanair – to process transactions faster and easier.
These companies hold potential for high payoffs. But naturally, resource and development costs for these nascent businesses can be high and there can be more risk. This is where early-stage venture capital in particular presents an opportunity to identify homegrown entrepreneurs developing new technologies or taking advantage of market shocks.
The cyclical nature of markets means that there will always be times of buoyancy and times when growth slows. But the one sure thing is the ever-increasing pace of technological change. By understanding and focusing on the trends that drive it, businesses can present solutions that underpin progress.
The most exciting technology is not always the loudest, in fact it rarely is. The London startups quietly and patiently building strong businesses are often the most transformative.
The post The bubble has burst for tech firms built on hype but solid businesses will keep growing appeared first on CityAM.
