Encouraging signs for the tech sector as 2024 unfolds

Andy Wright, Partner in Odgers Interim’s Technology Practice, notes a marked increase in companies hiring at senior interim level, even though stubborn financial pressures remain.

No doubt about it, 2023 was a challenging year. Alongside ground-breaking advances in generative AI came impassioned debate around bias, ethics and the current limitations of this technology.

However, across TMT the macroeconomic picture was the biggest issue. In March 2023, the collapse of Silicon Valley Bank sent shockwaves through the industry as concerns grew that some innovate startups and scaleups would struggle to secure the funding they needed.  

Tech is unquestionably a capital-hungry sector, and with the cost of capital increasing last year due to the rise in interest rates, valuations fell and the mood music was quite gloomy. Yet the tech sector is renowned for moving quickly and its cycles are shorter than many other markets.

By the second half of the year, some more positive signs were discernible. As I wrote in September 2023, despite ongoing macroeconomic uncertainty there was an uplift in M&A activity and, as some of the larger TMT sector transactions closed, this drove strong demand for finance leaders and M&A specialists.

Now, onto 2024. So far, the signs are reasonably positive. We have seen a marked increase in companies hiring at the senior interim level. Encouragingly, many of the roles we are being asked to fill – in particular, CEO-level roles and growth/commercially focussed positions (such as Sales & Marketing) – are the kind that were far less frequent in 2023. Companies are investing in growth again and there is  more optimism to be found.

Yet it is optimism tempered by realism. Markets have been pricing in a cut in interest rates, but the economic outlook remains uncertain. We are in a ‘higher for longer’ rates environment and any fall in interest rates will not be dramatic.

Nevertheless, having factored in these persistent financial pressures, companies are keen to start moving on key priorities. There is a big focus on execution and value creation – and the need to do this at pace makes hiring executive level interims an attractive proposition. An injection of the right talent and experience can help companies achieve short-term priorities at speed, stealing a march on competitors. We have also seen a small increase in fractional roles, as financial pressures continue, but businesses taking this path remain in the minority.

Returning to the subject of M&A, PwC asserts the starting bell has sounded for an upswing in activity. Personally, I’m disinclined to use such bullish language, but I agree that we will see a rise in dealmaking and an improvement in the private equity markets. There will be a greater focus than ever on value creation.

That said, it’s fair to say the days of ‘growth at all costs’ are now over, in favour of greater financial prudence. Frugality has become sexier than burning through heaps of cash. As TechCrunch winningly put it, Tech companies are finding their profitability groove. The name of the game is demonstrating a rapid path to profitability.

Any easing in the cost of borrowing may trigger a gradual resurgence of digital infrastructure investment. In several other verticals, many of which are linked to the growth in AI such as Climate Tech, Quantum Computing, Web3/Blockchain, and Semiconductors, there is a strong likelihood of growth.

Regarding Semiconductors, research by Sifted last year identified 504 European startups working on semiconductor strategies. The UK led the way with 88, followed by Germany (65) and France (64). In another large-scale vote of confidence for this area, recent reports suggested that OpenAI’s Sam Altman was looking to raise a cool $7 trillion to fund an AI chip project.

Fuelled by the  increasing focus on ESG, Climate Tech is very much in the spotlight. HSBC labelled climate tech 2023’s “standout sector” as it raised a record $6.2bn in UK venture capital, a 40% year-on-year rise. Meanwhile, several industry experts predict that Web3 (the next iteration of the internet, built on blockchain and more decentralised) will become more widely embedded, be that in gaming or across business areas such as supply chain management as innovative use cases emerge.  

If one thing is certain it is that a degree of uncertainty will continue. In what has been described as democracy’s biggest test ever, 4 billion people (over half the world’s population) are eligible to vote in elections this year. The UK electorate included – although it is possible a general election here could be held as late as January 2025.

Obviously, until the votes are counted, uncertainty will stay part of the picture. But setting the political dimension to one side, the ground on which to build feels considerably more solid than it was a year ago. In the coming months, I expect more Tech companies to turn to senior interim talent to help them exploit growth-focused and value creation opportunities.