Here are some predictions for 2019 and a review of my thoughts for 2018, many of which were wrong.
The M&A market slows meaningfully, especially at the multi-billion dollar level. The recent seasickness in the public markets forces most CEOs adopt a more conservative approach to acquisitions. Facing large swings in valuation, these leaders may struggle to advocate and articulate that large acquisitions are accretive and will be immediately rewarded by share appreciation after an acquisition.
The IPO market remains open despite the turbulence of the public markets because institutional investors still seek better than market returns. Multiples of SaaS companies have remained at relative highs: still trading at 8x forward as of today, which is 45% above historical averages.
Blockchain technology finds its second killer application. After all the hype and ICO-mania in 2017, the flurry of startups attempting to solve every startup with a distributed ledger and the collapse of currencies in 2018, one startup emerges in 2019 with the next killer use case; Bitcoin being the first. I suspect the second killer application will not be currency based, but a consumer product.
The Monoclouds continue to challenge the open source ecosystem by offering hosted services of popular projects. This will force startups to move up-the-stack into the platform and application tiers.
Startups begin to siphon off important but underserved segments of SaaS incumbent’s customer bases. 1% of Salesforce’s revenue makes a unicorn. This will occur in all major SaaS categories, products serving VPs of Marketing, Sales, Engineering, and Customer Support.
Data engineering is the new Customer Success. A decade ago Customer Success wasn’t on anyone’s lips. There were no VPs of CS in most software businesses. Data engineering, the discipline of moving data well, will have a breakout moment, complete with conferences, thought leaders and a company that becomes the symbol of the category.
- The tax holiday for repatriation creates one of the most active M&A environments of the past ten years. This was true. Software M&A volume neared $100B, almost 3x better than any year in the past seven. There were many take-privates, acquisitions the day before the IPO (2 of those), and classic M&A. The most notable thing may have been the multiples which were 2x higher than in recent years.
- The SaaS fundraising market remains ebullient through 2018 as vibrant M&A and an open IPO window trigger substantial liquidity for shareholders. Right. SaaS fundraising remained strong. Volumes relative to 2017 didn’t change materially, though.
- Machine learning fades as a buzzword. To an extent. There are still many pitches with ML, but chatbots have faded and so has the idea of applying ML to everything with the thesis that it will differentiate the product in market.
- Blockchain in the enterprise takes the reign as the buzzword for 2018.*Wrong. In retrospect, Kubernetes is the technology for 2018 that broke out, both in adoption and VMWare’s acquisition of Heptio.
- The classic open source strategy of the last fifteen years is abandoned because of the competitive threats from infrastructure-as-a-service (IaaS vendors). Correct. Amazon launched competitors to many startups at its annual Reinvent conference, especially at the database tier.
- GDPR becomes an important consideration in most SaaS companies. Wrong. Regulations like GDPR remain important, but after the initial panic and slower sales cycles, it seems to me that these regulations have become no different than SOC2 and ISO compliances. A cost of doing business.
- Businesses emerge that create opinionated stacks for different functional roles and simplify day-to-day tasks for knowledge workers. Wrong. We didn’t see this in 2018 at all!
Looking forward to a great 2019. Happy holidays to everyone.