Tech outlook for 2023

As we enter 2023, investors’ thoughts may start to wander to the next big thing in the tech industry. We have asked leaders in the venture capital business to weigh in with their thoughts and considered the tech trends we’ve identified. There’s an overwhelming consensus that over the next few years, applied artificial intelligence (AI) will play an ever-increasing role in our everyday lives: from cleaning our homes, to automating some of the work we do.

Working hand-in-hand with the advancement of AI, is the need for accelerated internet speeds and new devices to support the changing needs of industry and individuals. Tomi Davies, President of the African Business Angel Network (ABAN), says: “In 2023, I am expecting to see an expansion of high-speed internet and mobile networks. Increasing adoption of artificial intelligence and machine learning technologies across sectors, especially for sustainable agriculture, health and education. The continuing growth of e-commerce, new fintech innovations in digital payment, and a rise in the use of renewable energy sources, such as solar and wind.”

Clive Butkow, CEO of Kalon Venture Partners, anticipates that we’ll see a continuation of existing trends as well as some new ones coming in to play:

1. Software as a service (SaaS) will continue to grow with reset valuations.
2. Augmented reality and virtual reality technology will continue to advance.
3. We will see the inching towards the Metaverse.
4. Progress in Web3 and blockchain technology will advance significantly in 2023 as companies create more decentralized products and services.
5. Cybersecurity will achieve more traction and focus.
6. AI everywhere, as AI will become real in organisations.

Investment spend over the past couple of years supports these views, providing the infrastructure for new solutions. Some investment figures relevant to our market include:

• Clean energy. Total investment in 2021: $257 billion (USD).
• Mobility, as seen in the shift towards a shift toward autonomous, connected, electric, and smart (ACES) technologies. Total investment in 2021: $236 billion (USD).
• Advanced connectivity, such as 5G and 6G to come, Wi-Fi 6, optical fibre, and low-Earth-orbit (LEO) satellites, is anticipated to provide greater speeds and coverage that will affect all industries. Total investment in 2021: $166 billion (USD).
• Applied AI, although cybersecurity concerns may slow its implementation. Total investment in 2021: $165 billion (USD). This sector can be combined with trust architectures and digital identity to manage technology and data risks. Total investment in 2021: $34billion (USD).
• Web3, as a future model for the internet to decentralise authority and distribute it to users, thereby providing them with more ownership over their digital assets. Although interest and investment have been high, viable business models are lacking. Total investment in 2021: $110 billion (USD).
• Immersive-reality technologies, such as augmented reality, virtual reality, and mixed reality. Total investment in 2021: $30 billion (USD).
• Industrializing machine learning (ML), which may potentially reduce development costs by 40% and production time frames for ML applications by 90% (from proof of concept to product). Total investment in 2021: $5 billion (USD).

Some of the sexier global trends to keep an eye out for include developments in the area of bioengineering. There’s renewed interest from investors in extending life spans for humans, delaying menopause for women, and using bio-based materials (e.g., replacing plastic containers with containers produced from mushroom, seaweed, or hemp). Where applied AI may be more visible, is the immersion of robots into everyday life (to help around the house, or entertain and educate children), while virtual power plants manage decentralised energy systems, and ambient health is monitored via non-invasive devices.

Given the recent lay-offs in the tech industry, Butkow says that “2023 will mark the largest migration of talent from large companies to startups that we have ever seen, which will present a great opportunity for building a world class founding team.” He further anticipates that:

1. Fundraising will be a return to the fundamentals -- what are your unit economics, and either profitability or path to profitability.
2. There will be a liquidity squeeze in later stage rounds, Series, B,C,D, etc.
3. There will still be a surplus of capital in the market, however, more will be deployed to seed and pre-seed deals.
4. There will be heightened scrutiny of the startup team. Thorough due diligences will be back.
5. Experienced boards will be back.
6. Key metrics will be back.

Continuing the commentary on funding, Hema Vallabh, Founding Partner at Five35 Ventures says, “it’s encouraging to see that the percentage of funding invested in female CEOs doubled from 2021 to 2022, but with this sitting at only 4% it shows there is still a mammoth amount of work to be done. I’ll be continuing to monitor this upward trajectory closely, and with Five35 planning to increase investment activity this year, we will hopefully be able to contribute to a steeper increase in the slope.”

Focussing on the African continent, “the general trend we will see is a lot of horizontal mergers and acquisitions (M&A) and consolidation between tech startups across Africa. Larger Fintechs buying smaller Fintechs from a geographical consolidation standpoint. VC funding will be quite limited for those that don’t have sufficient runway, so it will be the survival of the fittest and that will likely happen through horizontal M&A. Fintech and retail tech the two most likely sectors where this will play out,” says Zachariah George, Managing Partner at Launch Africa Ventures.

When asked to provide some insight on his outlook for 2023, Keet van Zyl, Partner and Co-Founder at Knife Capital, shared that “many startups bootstrapped in 2022 and delayed funding rounds, or crafted bridge rounds, to ride out the storm and show validated unit economics when they raise their next round. There are many VC Funds that raised funds in 2021/22 and now sit on ‘dry powder’ of funds that have to be deployed. Therefore, continued increase in investment activity, as startups now gear up for growth, are forced to extend runway further.” He further anticipates:

1. a market correction/more realistic valuations and funding structures, as a result of the global economic slowdown in 2022, exposing unreasonable valuation expectations.
2. Increased sales cycles for B2B startups as corporates conserve spending, resulting in higher burn rates/shortening cashflow runways.
3. Continued focus on businesses across the African continent that solve meaningful challenges.
4. Increases in secondaries/buy-outs of VCs and Angel investors, facilitating exit activity and bringing liquidity into the market.
5. We should see some VC Exits as Corporates acquire Startups to fuel their Innovation Strategies as they look for other avenues for growth.

Low code and no code solutions became a really viable proposition for founders in 2022 and this trend will continue. Paired with some of the consumer AI solutions, such as Chat GPT, we could see a new profile of professionals try their hand at a tech startup.

2023 will come with a number of headwinds, particularly in South Africa, but the tech space has always aimed to disrupt the status quo, finding new business and operating models. We concluded last year with six investments in the last six months and we’re hoping to carry that momentum in to this year. Happy investing!