With the fourth industrial revolution well upon us, investing in technology is only increasing in popularity.
As technology is fully integrated into the way we work, the next stage of development is getting to the heart of the way businesses are run and how we can do things more efficiently – from accounting software to marketing automation programmes, technology backed B2B service are emerging as a new focus for investments.
The explosion in consumer-facing tech is well documented, with FinTech unicorns leading the way, but one huge, and often overlooked, growth area for tech investment is in B2B products.
The sector is rapidly expanding – you only have to look at Forbes’ 30 Under 30 In Enterprise Tech to see examples such as Affinity, a ‘relationship intelligence platform that uses AI and natural language to expand traditional CRM’ with funding of $13.5 million.
Other examples from the list include Forethought, an enterprise search company that has created a ‘question-answering retrieval AI agent’ designed as an essential tool to ‘support employee workflow rather than automating the work of real people’.
The shifts in these markets are similar to what we have seen elsewhere – a shift from on-premises and desktop software to cloud-based SaaS.
B2B SaaS applications are endless, just think about CRM and sales, enterprise resource planning, marketing automation, HR, collaboration, project management and e-commerce, for instance – all growth SaaS markets.
SaaS models attract investors because such enterprises usually entail a wide economic moat which can deliver a sustainable economic advantage and, above all, predictable, recurring, high margin revenue.
The popularity of SaaS doesn’t look like slowing down anytime soon – Cisco Systems predicts that by 2021 SaaS will account for 75% of global cloud computing workloads.
Many investors have capitalised on this growing market, in 2019 alone, Y Combinator, whose portfolio includes names such as Airbnb and Dropbox, have invested widely in companies offering SaaS B2B products, including WorkClout and Geosite.
Furthermore, we are now seeing specialist Enterprise SaaS funds, such as Armada Ventures, investing solely in these businesses. Their portfolio already includes high growth businesses such as Cloud.IQ which uses artificial intelligence to streamline customer experience, and Reevoo which enhances a business’ understanding of their clients.
With technology valuations once again booming, it has led some to talk about the dot com bubble 2.0, and whilst the technology sector will continue to offer huge opportunities, there are also risks that investors would be foolish to ignore.
Technology will always be a volatile market – the ever-changing nature of technology may mean that some processes, products or services become obsolete, so backing the right horse is imperative.
It’s also a sector that is increasingly in the regulators crosshairs – increasing awareness of the power of data, intellectual property and use of personal information means that the diligence and safeguarding requirements are only going up.
Therefore, investing in B2B services, such as corporate SaaS, rather than high-profile consumer facing tech giants, should help to mitigate these risks. But understanding how technological changes will impact investments, which asset types or sectors are more resistant to obsolescence from disruptive technologies, and where the opportunities lie will certainly be essential knowledge for investors.
Onefourzero can help investor do just that…
We are a digital due diligence firm supporting large cap investments, global corporates and major industry bodies in identifying opportunity and risk, mapping markets and headroom for growth. Please don’t hesitate to contact us for more information on how we can assist you.