Three-quarters of London tech firms have missed a sales forecast in the last two years, new data shows, as a trifecta of inflation, economic uncertainty and depressed consumer demand raised the barriers to growth in the sector.
More than two in five tech businesses said they had froze hiring as a result of missing forecasts, according to a survey commissioned by revenue intelligence business Gong, while one in three said they had let people go and a similar number had stopped company perks.
At least 15% of firms are now cutting their revenue projections, while 11% said they were keeping them steady.
Gong CEO and co-founder Amit Bendov said: “Companies struggle to forecast accurately in good times, and the problem is compounded when economic headwinds hit.”
The data is the latest sign the challenges facing UK tech firms as they try to scale – on top of difficulties securing funding.
The median venture growth deal value declined 17.4% in the third quarter of 2023 compared to the same period 2022, according to data from PitchBook, while median valuations slumped by 26.1%. The proportion of ‘down rounds’, in which a firm accepts investment on worse terms than in previous funding rounds, increased to 21.3% from 14.8%. Since the start of the year, scores of tech firms from food delivery business Gousto to fintech giant Revolut have seen their valuations cut by investors.
Priya Oberoi, founding general partner at Goddess Gaia Ventures said: "I think it's got tougher for everyone -- you really have to prove that you are top of your class. Meetings are getting longer, decisions are taking longer and there's more due diligence.
"The idea of hyper growth at all costs is something that we won't return to. The silly money won't exist going forward -- founders and portfolio companies must demonstrate that their unit costs are down so that they can actually create a profitable company."
It comes as the number of company insolvencies hit a 30-year high in 2023 as firms suffered amid high interest rates and cost pressures.
Figures released today by the Insolvency Service revealed that 25,158 firms across England and Wales went bust last year – up 14% on 2022 and the highest annual number since 1993.
The number of creditors’ voluntary liquidations (CVLs) surged 9% to 20,577, marking the highest since records began in 1960.
There were also 2,827 compulsory liquidations, up 44% on 2022, a 27% rise in administrations to 1,567, a 67% increase in company voluntary arrangements (CVAs) to 185 and two receivership appointments.
Specialist recruiter SThree today warned business activity “continues to be subdued for longer than expected” as it posted flatlining sales in 2023.
The London-based business, which offers recruiting services for science, technology, engineering and maths graduates, said it had been impacted by a “market-wide drop in hiring demand” after net recruiting fees declined 4% to £419 million for the year.
The firm said: “Global macro-economic factors through the year, such as high inflation, market uncertainty and high interest rates weighing on investment decisions, have created a challenging labour market.
“Many organisations took stock of their previous expansive hiring initiatives to reassess their footprint in light of a weakening outlook.”
