It’s been almost a year since I was given the fantastic opportunity to take up the reins as Head of Technology, Media and Telecoms (TMT). As we head into 2023, it’s an opportune time to look back on some of the forces that have shaped the sector over the past 12 months and consider what might lie ahead.
Head of Technology, Media and Telecoms, Barclays Corporate Banking
As the world started to recover from the shocks of the pandemic in early 2022, the next-generation tech verticals – FinTech, HealthTech and ClimateTech in particular – continued the pace of disruption, despite subdued investment into the sector. Similarly, the DeepTech of AI, AR, machine learning and IoT continue to play an increasingly important role with many corporates seeking competitive advantage and efficiency through the benefits they offer. And, of course, the metaverse started to become of more interest to corporates alike, as concept moves to commercialisation.
Many information computing and technology services businesses experienced solid growth, driven in part by the advances in 5G wireless, fibre rollouts, cloud services, and demand for cybersecurity services and digital consultancy. And let’s not forget how social commerce, gaming, next generation digital services, eSports and other new forms of content have continued to shake things up within the media industries and drive new revenue lines.
However, the industry is by no means immune to the macroeconomic challenges facing the world. The war in Ukraine, geo-political tensions and the lingering impact of Covid-19 on supply chains (particularly in China) have had an impact on the sector. Tightening monetary policies, inflation and a slowing growth outlook have created their fair share of challenges, leading to a global correction in valuations.
Despite these headwinds and ongoing recessionary fears, tech’s underlying demand drivers – productivity, efficiency, digitalisation, and sustainability, to name a few – remain positive, and the sector continues to attract interest from VCs and other investors.
We expect to see a normalisation in terms of valuations this year, with Q4 2022 valuation declines already showing signs of plateauing versus earlier quarters. High levels of investment dry powder remain on hand, and there’s likely to be continued investment demand for those businesses with proven business models and as previously cited, those in niche digital and disruptive industry vertical sectors. Alantra cite the return of strategic acquisitions given the more competitive environment for corporate acquisitions, with many businesses still seeking opportunities to acquire talent and innovation. Demand for software-as-a-service (SAAS) models also shows no signs of slowing, and those operating in this area should be able to attract a healthy level of interest from investors and businesses alike.
Following the accelerated shift towards digital during 2020 and 2021, organisations are still focused on developing their digital transformation strategies to drive efficiencies and reduce costs, which is good news for tech businesses across the board.
As futurist Jim Carroll once said, “Today is the slowest day of technological change for the rest of your life.” Given the current pace of change across TMT, along with the Government’s recent announcement to accelerate innovation across the country and invest further in tech and related industries, this sentiment should continue to hold true well into the future.
Key areas we think will experience the fastest pace of change – and most interest – this year include the ever-increasing role of AI and chat bots, and more commercialisation of the metaverse and Web3.
Similarly, demand for media and content will continue to be huge, and I’m sure we’ll all be keeping a keen eye on the ways in which the big SVOD players are moving into the advertising space. However, given the cyclical nature of marketing services, a more cautionary approach to the B2C market may be on the cards.
Looking at what lies ahead in terms of talent for TMT, although the underlying skills shortage is unlikely to go away any time soon, the recent staffing cuts made by many Big Tech companies across Europe may provide a welcome talent pool for the rest of the industry.
Finally, as governments worldwide seek to decarbonise their economies, the TMT sector, given its growth and interconnectedness with other industries, has an important dual to role to play in minimising its own environmental impacts and supporting other industries in their transition to net zero. We expect this to be a key trend shaping the industry this year.
That’s not to say that TMT businesses aren’t already focusing on these issues, many already have sound ESG strategies in place with ratified targets. There are also great examples of tech companies with powerful purposes that may also help to attract and retain talent.
The latest Government energy support package may impact TMT businesses on that journey. The Q1 price cap will be removed for businesses in England, Scotland and Wales, and a potential discount applied based on a ‘government supported price’ may be applied.
For TMT businesses, this development may lead to rising bills and a stretch on operational costs. In the short term, businesses may look to squeeze margins, reduce staffing costs, or even look for alternative ways to lower their energy use. Whilst investment in longer term solutions may hit corporates as an extra cost in the immediate future, it might also be imperative for businesses to look at how they can future-proof their running costs by developing a more sustainable, renewable approach to their energy consumption. With sustainability high on the agenda for many businesses, it is important that the cost of doing business does not overshadow this important transition. For projects with long-term sustainability at the core, sustainable financing may be a suitable option to support any immediate shortfall in cashflow.
Tech, media and telecoms businesses are continually finding new ways to disrupt how the world works at pace. Of course, operating effectively at speed brings its own set of unique challenges, that even the most dynamic of businesses might struggle to manage alone.
The recent COP27 summit concluded that $4-6 trillion needs to be invested in renewables and decarbonisation solutions every year until 2030 – including investments in technology and infrastructure – to allow us to reach net zero emissions by 2050. To support business in developing these technologies at scale, Barclays has announced an increase in our equity capital investment into global climate tech start-ups through our Sustainable Impact Capital portfolio, increasing from £175m to £500m by the end of 2027. The bank also recently announced a partnership its Eagle Labs initiative has developed with “Carbon 13” to deliver a Venture Launchpad in 2023 – providing founders with support and mentoring to tackle major challenges that UK start-ups face on the road to net zero, driving innovation in the tech sector, and providing access to potential investors.
I look forward to our role in supporting clients as they transition, not only through our core banking capability, but also through our advisory, innovation and equity support for climate technology.
In summary, I expect the sector will continue to bring many exciting developments across the piece, for both the disruptive and the mature, for founders, small tech and big tech alike. I look forward to increasing our support for businesses across the industry and helping to facilitate strong, responsible and sustainable growth throughout 2023 and beyond.
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