Trends that impacted technology companies in 2021 are likely to pose challenges and opportunities to the industry in the coming years.

Learn more about the state of the market and how you can position your company for success.

Major Trends Impacting Technology Companies

Three major trends that will continue to affect businesses into 2022 include:

• Increased transactions
• Rising valuations and funding
• Continued innovation

Increased Transactions

Merger and acquisition (M&A) activity continues at a fast pace.

The 2021 increase could be due to pent-up demand related to COVID-19’s impact on 2020, or it may be the result of a widespread desire to close transactions prior to the tax-regulation changes of 2022; possibly, it’s a combination of both.

New software companies are facing fewer barriers given the ability to license infrastructure and related pay-as-you-go services. A continued proliferation of new businesses and companies could have the ability to boot-strap for longer periods of time, which would drive Series A funding rounds higher.

Rising Valuations and Funding

Valuations and funding continue to rise at a fast pace, with a record number of venture capital, private equity transactions, and overall funding in 2021. These trends are expected to continue given the capital available and desire to fund innovation.

While it could seem natural to expect a decline in M&A activity in 2022 and 2023, funds to support such transaction volume remain available, so transactions are likely to remain steady for the foreseeable future.

Continuing Innovation

Technology transformation of legacy sectors continues to drive innovation and opportunity.

Disruption spans multiple industries including:

• Retail
• Financial services and payment processing (Fintech)
• Health care
• Logistics
• E-commerce

Future Opportunities and Challenges

Five items to consider as you assess your organization’s operations in coming years include:

• Labor and inflation
• Funding
• Start-up growth
• Technology
• Taxes

Labor and Inflation

Inflation and the rising cost of talent are expected to drive up labor costs in 2022 and beyond, which could impact growth as companies compete for skilled talent.

It could also lead to offshoring at earlier stages of the development life cycle.

With a workforce that continues to be largely remote or dispersed, organizations face new operational and regulatory challenges as well as opportunities to mitigate rising labor costs.

Funding

Federal funding for certain sectors, such as communications and media, and medical technology (Medtech), could improve the ability to innovate and raise nondilutive capital.

Capital markets remain available to emerging and growth-stage companies, including initial public offerings (IPOs), special purpose acquisition companies (SPAC), and institutional investors, which increases the ability to raise funds and accelerate growth.

Start-up Growth

The costs to launch a business by leveraging infrastructure could continue to decrease, which would give emerging and growth-stage technology companies the opportunity to grow.

Companies are accelerating through the traditional stages of a business life cycle—from emerging to growth to mature—which also accelerates the need to build infrastructure and manage the risks and opportunities presented to them.

Technology

Companies are driving the increased demand for System and Organization Control (SOC) examinations, Federal Risk and Authorization Management Program (FedRAMP) assessments, the need to better understand their IT environments, systems integration, and cybersecurity to ensure services provided to their customers are technologically advanced.

Taxes

There are over 9,000 state and local jurisdictions that impose taxes on businesses, and their rules are in constant flux. Tax changes and regulation continue to be a challenge for companies.

The need for organizations to stay informed, be compliant, and minimize exposure is predicted to continue.

We’re Here to Help

For guidance into growing your organization or overcoming challenges, contact your Moss Adams professional.

You can also learn more about our Technology Practice and additional topics affecting the industry.