A version of this article appeared in the Dallas Business Journal, June 3, 2024, and the Denver Business Journal, July 1, 2024.
The technology industry is a dynamic and rapidly evolving sector, characterized by constant innovation and fierce competition. To thrive in this evolving environment, it’s important to stay informed, remain agile, and be ready to act.
As 2024 progresses, there are several key trends including increased borrowing costs and private investment growth impacting the industry, presenting both opportunities and challenges for businesses.
Trends Impacting the Technology Industry
There are several trends seen in the technology industry that span private equity, emerging sectors, and the workforce.
Economic Factors
The technology sector is experiencing challenges due to the following:
- Hesitant capital markets
- Decreased enterprise valuations
- Increased borrowing costs
This has led to a significant decrease in IPOs and increased holding periods by private equity (PE) firms and financial sponsors.
Private Investments
Despite the economic challenges, technology PE deal activity in the central region, which includes Colorado, Texas, and Utah, experienced 29.3% growth in 2020, showing greater resilience compared to a stalling broader US market.
Activity restarted with vigor the following year and held steady in 2022.
Dealmaking slowed again in 2023, but activity in the region is on pace to surpass annual levels seen before the COVID-19 pandemic.
Venture capital (VC) deal activity has also shown periods of strength in the central region. Despite a slowdown in dealmaking in 2023, the central US region’s deal value has proven more resilient compared to the country overall.
Emergence of New Sectors
The technology industry is also being influenced by emerging sectors, such as quantum computing, artificial intelligence (AI) and cybersecurity. Traditional business-enabled services that improve efficiency, customer engagement, and workflow continue to expand, offering new avenues for growth.
Workforce Adjustments
Large technology companies continue to adjust their workforce size, a trend seen during the pandemic and referred to as right-sizing. Right-sizing refers to the process of restructuring or reorganizing a company's workforce or operations to match its current market conditions or objectives, which often involves reducing or increasing staff or resources to achieve optimal efficiency and performance.
This is expected to stabilize earnings in the technology industry by mid-2024.
Geographic Shift
There’s a noticeable migration from traditional technology hubs in Silicon Valley, Seattle, and Austin to further development of the central region and the Atlantic coast. The Dallas Fort Worth (DFW) area was second only to New York in adding tech jobs in 2021 and 2022, with 14,010 new jobs. This could diversify the industry’s geographic footprint and provide business owners an opportunity to expand.
Opportunities and Challenges
With these trends in mind, the technology industry faces several opportunities and challenges over the next two to three years.
Opportunities
- Capital market revival. If capital markets open up at reasonable values, it will create opportunities to fund growth. Increased exit valuations should also result from this trend.
- Digital transformation. The ongoing digital transformation presents an opportunity for companies to innovate and stay ahead of the competition.
- Outsourcing. The search for efficiencies has led many companies to outsource technology-enabled services, a trend expected to continue.
Challenges
- Regulatory oversight. Increased regulatory oversight presents a challenge, particularly in areas such as environmental, social, governance (ESG), which is becoming a significant focus for public markets, state requirements, and investor needs.
- Cybersecurity risk. As technology advances, cybersecurity risk is always prevalent and will rise in priority for companies to address.
- M&A activity. With a large backlog of deals, companies will need to be prepared and have the right advisors when M&A and capital markets pick up.
- Talent retention. As the markets pick up, retaining talent and managing talent growth will become a challenge, given that attrition generally increases when market uncertainty decreases.
We’re Here to Help
If you have questions about leveraging trends in technology for your organization, please reach out to your Moss Adams professional.