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The tech sector landscape in 2021: 4 takeaways from Tech Connection

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The past year has been a crucial one for the technology industry as companies in this space have made it possible for people to stay connected for remote work, remote learning, virtual health, vital e-commerce services and much more.

RSM’s February Tech Connection event brought together industry leaders to discuss the investment trends of the last year, market shifts, and Silicon Valley Bank’s latest State of the Markets report for the start of 2021.

Here are four key takeaways from the event:

1.  Growth remains a key metric

Many in the tech industry may have thought profitability would become more important than growth over the last year, but that hasn’t proven to be the case, Silicon Valley Bank senior market manager Dan Allred said during the event. In 2020, “higher revenue growth regained its luster, with higher-revenue-growth companies commanding higher multiples,” the State of the Markets report found.

“Growth is still the main metric,” Allred said. While there was record performance in initial public offerings in the tech industry overall in 2020, much of that IPO success did skew to some of the larger, well-known companies in the market.

What’s more is that despite the pandemic, “the United States is seeing growth in new business applications,” Silicon Valley Bank found. The bank is seeing the most significant early-stage growth in health tech (135% year over year), ed tech (119% year over year), and social networks (177% year over year).

2.  Location is key: Opportunities of a dispersed workforce

The rise of remote work in 2020 sparked a shift in where startup activity took place; in the established innovation hubs of the Bay Area and the Boston area, there was more startup activity in non-core metros in those regions compared to 2019, the report found.

“Especially in the Bay Area and Boston, you see a significant number of companies being started in the burbs relative to the city centers,” said Allred.

At the e-commerce platform Salsify, chief financial officer Mary Jefts said that the past year has “dramatically changed” the way the company approaches hiring.

“This has taught us that people are much more productive at home, much more than we thought,” she said. “From a hiring perspective, we’re hiring talent wherever now, and that has really removed a lot of the friction we had during the hiring process.”

3.  Anticipating an infrastructure bounce back

Some of the hottest companies over the past year have been in areas that thrived under the new parameters of pandemic isolation—on-demand food delivery and collaboration platforms, for example. Companies had put long-term infrastructure and information technology projects on hold to address urgent needs in 2020, and now there could be a renewed focus on those areas this year, said Byron Deeter, partner at Bessemer Venture Partners.  

"We anticipate headlines and IPOs being heavily skewed toward vertical software as a service, API-based businesses and open-source, lower-friction infrastructure models,” Deeter said. “Some of the heavier-weight infrastructure companies will bounce back toward the end of 2021, carrying through the next year.”

4.  Rise of the SPAC

It’s been virtually impossible to talk about tech financing and public debuts over the last year without talking about special purpose acquisition companies. SPACs have exploded in popularity, and 59% of active SPACs in 2020 either acquired or were looking to acquire tech companies, according to SVB’s report. The bank also noted, however, that “the current SPAC mania faces a looming cliff, as most SPACs only have 24 months to find a target.”

“The existing IPO process is still highly based on an era when there wasn’t free information flow and you needed to protect people from asymmetric information, but it’s totally the opposite now,” said Deeter. “The explosion of IPO alternatives and companies staying private longer are byproducts of a broken and antiquated IPO process.”

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