The last decade has been overwhelmingly good to the tech industry, for professionals, companies and investors alike. We have seen valuations go through the roof, huge amounts of capital flowing into an ever-growing volume of venture rounds, and salaries + benefits getting to levels so high that people in other industries started to quit their old-fashioned careers to jump into coding bootcamps and work as full time developers.
And for the last two years, a lot of volatility was poured into this mix due to the covid-19 pandemic, its inherent lockdowns, remote work policies and the disruption of supply chains. However, the end result of that wasn’t exactly what one would expect out of turbulent times and the pandemic ended up becoming a catalyst to tech companies valuation growth, eventually generating even bigger rounds of VC funding into many different types of companies, which can be perfectly seen in the image below taken from the article “What We Learned About Venture Funding During The 2008 Financial Crisis And The Pandemic As The Markets Face Fresh Turmoil“, written by Gené Teare.
For those who like to closely follow financial markets and economic analysis like me, we knew that at some point the market would need to correct itself and normalize pricing, as one thing was crystal clear: tech companies were not generating the financial results needed to justify their market cap.
With expansionary monetary policies seen in every major economy worldwide to mitigate economic issues brought by the pandemic, on top of early 2022 geopolitical issues in Eastern Europe that eventually brought commodity prices up to the roof, inflation rates started to get to levels that haven’t been seen in developed economies since the 80s oil crisis. And the remedy for that, we Brazilians know very well: an abrupt and continuous increase in interest rates to contain the rise in prices, which each major economy lagged on properly performing.
But you might be wondering, what does that have to do with Tech Funding or even Nearshore Outsourcing?
As the cost of money increases, especially when that is done subsequently by a very reliable institution like the American Federal Reserve, that’s when the funding paradigm starts to fundamentally shift, which is exactly what is going on right now.
The outcome of that is very well exemplified in the Wall Street Journal article “For Tech Startups, the Party Is Over“, written by Heather Sommerville. To summarize it all, company valuations become more conservative, stock prices of tech companies are normalized to their ability to provide cash flow instead of growing their userbase and the flow of investment capital that in recent years has been so abundant among Venture Capital and Private Equity firms starts to shift towards more conservative industries and/or fixed-income financial assets.
In a very competitive landscape such as the tech industry, being able to afford huge salaries to senior developers as well as pay for an extensive amount of benefits (that go from daily catered meals, 4-day working weeks, unlimited PTO and having offices resembling amusement parks) for a growing number of local tech employees, has become impossible without the abundant flow of capital that these companies used to enjoy.
Eventually, what we have started to see has been a growing number of layoffs among tech companies, which you can closely follow in the interactive table developed by Sophia Kunthara in her article “Tech Layoffs In 2022: Here Are The U.S. Companies That Have Cut Jobs“.
As you can see in this snapshot of the Q1 2022 tech layoffs mapped in her article, there is no specific region or company size being highlighted, which only enforces the trend that these layoffs are impacting the tech industry as a whole and therefore will be just a matter of time until the effect on wages, number of open tech positions and company’s organizational structure end up changing our current paradigm.
And that is exactly why relying on Nearshore Tech Teams, such as the ones offered by Luby, is a powerful way to mitigate all the issues arising from the downturn on tech funding.
In this type of service provision, your company is able to save a lot of time and money, consequently increasing its financial result while also growing its user base, as you will be relying on the expertise of a solid partner that is specialized in solving the biggest pain points of tech companies nowadays:
- Access to cost effective tech labor in a landscape of talent shortage and abnormal salaries;
- Increased time to market efficiency, with extended teams working on digital products from conception to delivery;
- Continuous innovation, through the work of multidisciplinary professionals that are focused on assessing and improving your current digital product offering;
On top of that, your company will also be enjoying the inherent benefits of a Nearshore Tech Partner as all delivery personnel are working in the same time zones as your own employees, with designated professionals that are educated on and used to the Westernized business culture which removes any types of cultural barriers, and who are able to perform on-site visits as often as needed as Brazil has several overnight direct flights to the biggest cities across North America, UK and Western Europe.
As you choose your Nearshore Tech Partner have in mind that not all vendors possess the necessary structure or industry-expertise required to support your operation. So always prioritize companies with a proven track-record of projects delivered to international clients, especially the ones with a long-lasting and continuous relationship with well-established companies in developed economies.
At Luby, we are very proud of the portfolio we have built through more than two decades of existence. We have addressed the tech needs of more than 500 satisfied customers, across very different industries, both domestically and internationally. And speaking of industries, our continuous delivery for clients in the banking, fintech and startup ecosystems has paved the path for us to become experts both in digital transformation and financial solutions.
Consequently, today we are able to address the tech needs of companies with varying team sizes, business challenges, customer goals or even funding stage, as you can see in our persona chart below:
To understand which type of recommended service is the best indication for your company, feel free to reach out through this form, or if you prefer, just send me a message on LinkedIn and I’ll be happy to follow up with you!
In conclusion, the downturn on Tech Funding has only started and there’s plenty of turmoil ahead of us and the end result of all upcoming changes will meaningfully change the way the Tech industry works. To help you navigate through this raging sea, be sure to look for a great Nearshore Tech Partner to help you steer the wheel, and if your choice is Luby, then I’m sure you are going to thrive.