As we close out our Q1 Global Work Tech VC research, once again, we’re seeing the category outperform the tech market at large.
It’s tough out there. Economic uncertainty seems like the only upward trend in the market. There are increasing forecasts of a US recession. Tech layoffs have seemingly rented headline space in our news feeds. And those of us with family, friends, colleagues, or neighbors that have been impacted by all of this, whether by layoff or the struggle to keep households or businesses afloat, have to start by acknowledging that these are real-life problems affecting real people. But like so much in our world these last few years, nothing follows the old norms of market behavior, and nothing hits evenly across all market segments or categories. Work Tech VC was one of the market performance anomalies during the COVID-19 crisis, and it’s been one since the market started slowing in Q1 2022.
A Picture Tells A Story
TechCrunch recently shared their analysis of Q1 global VC data from Pitchbook and characterized it as “continued decline.” You can see the data in the blue chart above. We recreated the same data points in the same time frame in the red chart. It’s an exercise we’ve done before with similar results. You can see that while the market at large was declining from Q4 2021 to Q1 2022, Work Tech had an uptick. Then again, as the market at large continued its steady decline from Q1 2022 to Q2 2022, Work Tech’s decline was less sharp. Perhaps more interesting is the Q1 2023 data. While the market at large demonstrates the “continued decline,” Work Tech’s Q1 demonstrates a reversal that not only exceeds Q3 and Q4 of 2022, it exceeds any quarter in 2020 or previous.
We’ve outlined the decades-long macro trends and labor market trends that have shaped the emergence of Work Tech in our “New Technology Shaping the Future of Work” research. Suffice it to say these trends have not just resulted in this disparity between the VC market at large and Work Tech VC, but they are the same trends that have, for the first time ever, made the labor market one of the more buoyant factors in the economy. And most of these trends, like the shrinking available workforce, are forecasted for the same trajectory through 2030 or beyond. Our upcoming research on skills has similar data points as we are looking at the viability of the skills-based organization trend.
Zoom Out for Perspective
Zooming out to look at the last 25 quarters tells yet another story. One of perspective. You can see that even with the decline from Q3 2022 and performance to date, Work Tech has been operating at its highest quarterly levels since Q1 2021.
This isn’t to say that Q1 2023 is the start of a climb back to the record levels of 2021. A quarter does not make a trend. It is to say that 2021 was an anomaly that shouldn’t be the benchmark for future performance.
The Opportunity for Startups and Earlier Stage Investors
Work Tech is the category that is shaping the future of work. Automation, AI, machine learning, conversational interfaces, large language models, cross-channel communication, blockchain, crypto, and all of the trends that have pundits buzzing for and debating about tech’s future are being ushered into the future of the workplace by Work Tech innovators. We have all of the sexy buzzwords.
But the category isn’t the most interesting part of the current market opportunity. It’s capitalizing on the lack of category knowledge and the hesitancy found at the VC funds investing in deals from pre-Seed through Series A.
We aren’t financial advisors, and this isn’t financial advice. We talk to A LOT of startups and scaleups that are raising funds, and the current climate has later-stage VCs somewhat frozen as they delay their decisions and try to understand the labor market trends and justify them against buying behaviors and market opportunities. It’s an understatement to say that they just don’t know what to make of Work Tech. This leaves tech providers that were going to be raising a Series A, “extending” their existing Seed Round. Taking more money at the lower existing valuation. Current Pre-Seeds that were moving to Seed are doing the same. And the earliest-stage startups are lowering their Pre-Seed expectations.
Another issue we hear from startups at the moment is that “no one wants to lead a deal.” Or, they commit to lead after the startup has commitments of $X. The result can be the same. Timing is so critical for startups as the consequences of burn rates are more real than ever when investors are hesitant.
The opportunity here is for angels and syndicates of angels to get access to deal flow that would not have been on their radar previously. Industry operators and savvy, independent investors taking less risk by writing smaller checks while helping startups extend their runway to the next major round. For startups in this climate, extending your existing round looks like a sound strategy as you drive further success metrics and increase your valuation while those later-stage VCs take deeper dives into their data rooms.
Opportunities for All Investors
While there are a few investors with category experience and knowledge, most all could use some market education. We’ll be reviewing the Q1 Global Work Tech VC results live on Monday, April 3, at 12 pm Eastern, 9 am Pacific, and 5 pm London time. Along with the numbers, we look at the trends that shaped them and what we expect to see moving forward. It’s a look back/look forward style webinar that includes a Q and A session.
Attend the industry’s Largest Global Work Tech Investor Forum
The 2023 HR Technology Conference and Exposition will gather the preeminent community of HR technology investment stakeholders for networking and strategizing sessions dedicated to accelerating innovation and investment in HR and work technology. The HR Technology Conference is already the largest annual gathering of investors and tech providers of all stages. Over the course of two days, the summit will connect these stakeholders for networking and strategizing sessions dedicated to accelerating innovation and investment in HR technology. Attendees will also have the opportunity to meet potential partners, expand their existing relationships, and get access to exclusive data provided by WorkTech. George LaRocque, WorkTech’s Founder, is the Conference Chair. WorkTech is also a sponsor of the event.
Participate in the Impact WorkTech Pitch Sessions and the Impact WorkTech Syndicate
Through our advisory work and the Impact WorkTech Accelerator, we get to see so many of the market’s most interesting Work Tech providers. We’re bringing the best of what we’ve seen in and outside of the accelerator to investors in closed-door pitch sessions where angel investors can then opt-in to contribute to a deal via the Impact WorkTech Syndicate.
Get access to WorkTech Data and Insights
Get access to exclusive Work Tech data and insights as you map the market or a specific category. WorkTech has a unique lens on the market. Bridging the gap between workforce and HR trends and tech provider strategy and go-to-market.