We talk about unprecedented disruption, but really the only thing that is unprecedented is what disrupts us; the fact that there is disruption is neither unprecedented nor should it be surprising.

But I do think that making predictions for 2023 is particularly hard. From a European tech start-up perspective, much of the industry is entering unfamiliar territory. That's because most key decision-makers, whether founders, managers or investors, have not run companies during a recession. They've enjoyed nearly 15 years of good times, and now that's ending.

They'll need to change how they operate, but change is hard if you've had that much of an easy ride particularly if you've enjoyed some success. All your evidence and experiences don't count for as much as you'd like them to because everything has been achieved in a more favourable economic environment.

And one of the most significant differences they'll see is how the focus changes. Twelve months ago, everything was about growth at all costs. It didn't matter how you grew or how much money you were losing, as long as you grew rapidly.

That's all gone. Growth is still good, but it needs to be profitable. The focus is on how much cash you've got in the bank and how far that can take you. This theme will dominate over the next couple of years, influencing founders, managers and investors decision-making and, as we'll see, underpinning most of my predictions for 2023.

1. The bar will be much higher for everyone – the first area we see this focus on cash and profit is in fundraising. The bar will be much higher for both investors (seeking to attract people to their funds) and founders (looking to fundraise). Everyone will be asking much more challenging questions, having higher demands and expecting lower valuations. The boom time of 2020 and 2021, with 20x, 50x and 100x valuations, is over, and with it, easy access to fundraising.

Those companies at an earlier stage, such as seed or Series A, might find it more accessible, but by and large, there will be a greater focus on tangible results rather than projections. In short, if you don't have to fundraise, perhaps hold off for a while. This is where having cash in the bank will be necessary because the further you can go with it, the longer you can wait until you fundraise.

2. Sector performance isn't a barometer– we all like to talk about hot new sectors, markets ripe for significant disruption and industries with massive potential. But while some sectors (such as parts of healthcare and cyber security) will have it better than others (anything targeting consumers), ultimately, the sector itself won't matter.

What's going to be important is the founders and the execution team. If they're sensible, with a good business model and some cash in hand, then they're the ones that are going to do better. I've no doubt that some businesses in healthy sectors, such as cyber, will go to the wall because the team isn't up to the job or their model isn't equipped to handle this disruption. Conversely, the right team and model will grow profitably whatever the sector – it just won't be at the level we've seen before.

3. ROI will take longer – And that less spectacular approach is linked to this next prediction. Businesses are going to achieve their strategic goals. It's just going to take a year or two longer. Those ambitions codified in three-year plans will still be realised, but it'll likely be beyond 2025 before they're reached. That's frustrating for investors, but it's the only sensible way any decent company will get out of this complex environment.
4. Unprecedented supply  in some secondary segments – That requires patience, but some people won't be able to wait that long. Certain VCs jumped headlong into booming asset classes that are no longer expanding so fast, and they'll be looking to get out. LPs will also request GPs to consider secondary options if they come fund raising without having exiting in the peak year of 2021. Not just of single companies but divesting themselves of whole portfolios.   

In the same way, CVCs that normally look at exiting every 5 to 7 years has not done so for 15 years riding the valuation wave, and actually to the contrary they’ve increased their exposure to Venture an incredible 4x in the last 4 years.  Now that Nasdaq is down by 35% and funding is more challenging many large corporate will look at reducing their exposure driving an unprecedented amount of secondary transactions.

This will lead to further valuation pressure in secondary transactions, as those wanting an exit realise they need to be realistic in what they accept. It'll be a buyer's market, and we could see a tidal wave of deal flow if a price balance between sellers and buyers in found.  In that situation, it's essential to focus on the most exciting opportunities and not get distracted by the volume of discounts on offer. Just as an overpriced, poorly made designer shirt is still poor value with 50% off, some investments aren't worth making.

5. Underpinning all of this is technology expansion – The big news over the last twelve months has been the sub-par performance in technology, as growth flounders and cuts are made. Yet the demand is still there; for digitalisation, cloud migration, cyber security, and remote working capabilities. That's not going to stop.

But it is going to require better management. Some huge tech companies have become complacent with costs, which is why we're hearing activist investors calling for what might seem like radical cuts and pay downgrades. Yet if those companies get a handle on expenses (like finally it seems to be the case), their customers are still looking for support, so the demand is still very much in place.

And this is where patience pays off for those who didn't go all in over the last couple of years. Many people did, and they're now licking their wounds. But investors that baulked at some valuations still have cash to deploy, and they'll be well placed to capitalise as prices come back to sensible levels. They still need to be patient – their investment horizon needs to be three to five years – but the opportunities are there.

It's going to be tough; make no mistake about that. We'll all have to weather the storm, and if you don't have enough coats, you'll find it cold. But we only have to look back at what came out of the 2008 recession, to know that there will be some spectacular technologies and inspiring entrepreneurs coming out of the next couple of years.  You only have to look at OpenGPT released in Nov 2022!

For investors, that means we have to continue to support these businesses. We need to ask the tough questions, not worry about missing out and look for those focused on building good execution teams to run sound business models based on a financial profile that stacks up. We need to put aside memories of valuations doubling year-on-year.

Technology is here to stay. We all need it, and that demand isn't going to dissipate. All that's changing is the rewards for those that back the right businesses will take a bit longer to realise.