Work software is seeing significant investments from VCs, reflecting the continued trend toward digital transformation and remote work.
In its Road to Next report released Tuesday, Deloitte found that even though overall investment in work software companies is down from the lofty heights it reached in 2021, the segment still accounted for 15% of total expansion-stage deal value in 2022 (per PitchBook). Venture-growth work software deals remained steady, barely dipping from $35.4 million in 2021 to $35 million in 2022.
“As market trends remain relatively dynamic, qualitative data shows the appetite for innovation among workforces is strong,” the Deloitte co-authors wrote.
The drivers of the resilience are “numerous,” according to the co-authors, but they highlight a few of the major ones in the report.
First, VCs haven’t given up on the idea, right or wrong, that work software can enhance productivity to increase overall return on investment — an attractive prospect during a period of economic malaise.
Second, poor macroeconomics — plus destabilizing recent events like the Silicon Valley Bank collapse — have encouraged VCs to turn toward more sustainable “growth trajectories,” which tend to be found among longer-lasting, ironclad business-to-business contracts for software tool suites.
There’s truth to that second point.
In an IDC poll earlier this year, 62% of corporate tech managers in the U.S. said that tech spending at their companies would be the same or increase compared with 2022. That’s despite the fact that 82% of them said that they expected a recession this year.
Gartner presented similar findings in a January forecast. The firm projected that worldwide enterprise spending on software would grow 9.3%, reaching nearly $1 trillion by the end of the year.
Tellingly, 2022 saw the most completed work software startup-related rounds in the $5 million to $10 million range in history, according to PitchBook (cited by Deloitte). And the median exit size via acquisition for work software companies in 2022 was $100 million.
“Work software providers are revamping their product and service offerings and reorganizing along novel lines that may turn out to be the workplace, workforce, organizational structure and operating models better suited for the future, thus enhancing overall productivity and well-being,” the Deloitte co-authors wrote.
But while the overall work software market remains strong, not every category is performing equally well.
VCs still think work software is a wise investment by Kyle Wiggers originally published on TechCrunch
