Market Insights: Navigating Economic Uncertainty
10 Key Takeaways from Vista’s Market Insights Event
Today’s dynamic market environment is generating unique challenges and opportunities for enterprise software companies and their investors. Vista Equity Partners’ Founder, Chairman and CEO, Robert F. Smith, joined Co-Heads of Vista’s Flagship Fund and Senior Managing Directors, Michael Fosnaugh and Monti Saroya, to discuss the trends shaping the enterprise software landscape and to share strategic insights on software investing. Below are 10 key takeaways from their conversation.
Macroeconomic Forces at Play
A New Paradigm in Global Business
We’re entering a new chapter in global trade with more variables than ever before. Despite efforts from several major countries to invest in technology and supply chain independence, barriers to true self-reliance are high, ensuring the global technology industry remains interlinked for the foreseeable future.
Expansion of the Digital Economy
By and large, corporations have been quick to adopt technology as a powerful enabler of growth and innovation. But in recent years – and accelerated by the pandemic – governments worldwide are recognizing the importance of embracing technology at scale. Beyond leveraging tech-enabled solutions for operations, they’re seeing the value of empowering their people to be productive citizens in this new, digital economy.
Climate Crisis and Compounding Economic Disparity
Climate change continues to be a major concern for businesses, investors, citizens and governments. At the same time, economic instability is exacerbating existing inequities, with the most vulnerable populations experiencing disproportionate disruption in access to basic services. Software solutions and the companies who provide them are uniquely positioned to affect positive change for both the climate and society at large.
Strength of Software
Software is the Most Productive Tool Introduced in the Business Economy Over the Last 50 Years
Software’s potential to increase productivity, lower input costs and expand market opportunities has made it an indispensable tool for the modern enterprise. Consumption continues to grow globally, making it likely that software will remain the most valuable business tool for the next 50 years, with increasingly compelling opportunities to not just power productivity but to power the human enterprise.
Software is Durable
Recent events have cemented software’s position as a mission-critical solution for businesses across the globe. During the height of the pandemic, software provided continuity in work, education and connection, boosting the value of software companies even as other sectors experienced tumult in the market. This resilience, in tandem with software’s highly predictable revenue model, presents an evergreen and enduring investment opportunity.
Enterprise Software is Differentiated from Consumer Apps and the Internet of Things
While tech valuations in the public market have experienced a downturn broadly, there’s a bifurcation within the trend. Consumer-driven and internet-focused companies have been the hardest hit, corresponding with a rise in inflation. Enterprise software companies have fared better on the whole as businesses recognize the high return on investment software solutions provide.
Smart Software Investing
A Disciplined Approach
Investors who have maintained discipline and remained focused on buying quality businesses with durable underwriting standards are likely to fare better in the current environment. This includes pursuing a measured approach and deploying capital at a continual pace over the life of a fund.
Focused on Founder Relationships
The majority of enterprise software companies are either run or influenced by their original founders. As founders look to scale their companies to new heights, they’re looking for an experienced partner who shares their vision and knows how to help them achieve sustainable growth, especially during turbulent market conditions.
Developing Talent from Within
Today’s business leaders face two challenges in hiring and retaining top talent. One, there is simply not enough talent – especially for roles requiring in-demand technical skills – to help them grow the top line. Two, wage inflation can mean companies are spending more on salaries, which are already generally a software business’ biggest expense. Talent best practices designed to develop talent from within can mitigate wage inflation while increasing employee satisfaction and retention.
Growing Businesses Rather than Priming for Exits
Creating sustainable businesses through long-term value creation planning is likely to lead to better exit outcomes than pursuing short-term growth at all costs. The former approach builds healthier, stronger and larger businesses that are ultimately more attractive to buyers – especially strategics – in today’s environment.