A few thoughts on the current market evolutions — Chapter 2

Xavier Lazarus
Published in
6 min readAug 4, 2022


By Xavier Lazarus, with help from Marc Rougier, Saish Rane, Justine Guers, Delphine Villuendas & Louisa Mesnard

Facing this new market condition, I gathered thoughts and analysis from both discussions with key players on both sides of the Atlantic and based on my past experience in times of crisis. Having started when some of my colleagues were still in Kindergarten, 20 years ago and 3 crises ago, is one of the few privileges I have in the market!

In these five chapters — published weekly on our Medium account, you’ll find a compilation of data, insights and advice I’d like to share and discuss with you. This is by no means a sure-fire thesis nor an omniscient crystal ball, rather the strong desire to share data and provoke thoughts, so we can collectively weather the unfolding stormy conditions.

Find the first part of this memo here.

The second main issue we are facing in the market is that on top of this tech bubble burst, macroeconomics is now tainted bloody red too!

While we painted rosy pictures of the tech world and valuations being supercharged during Covid, this period probably also served as a soft landing pad for businesses that weren’t “tech” who were in an abnormally long expansionist period without a crunch. In addition, the Ukraine war, turmoil in the energy market, post-Covid shortage of key components and global pressure on the supply chain, the high level of indebtedness of states after the pandemic bail outs & stimulus, and the bond crash led to the return of inflation and the associated unavoidable raise of interest rates, and finally a slowdown of the projected GDP evolution for the foreseeable future. The threat of entering the death trap of stagflation — the combination of inflation and recession — is looming on our economies.

Sure thing, but why would this situation not benefit the tech sector again like the pandemic did in spring 2020?

In simplified terms, digital tech expenditures are mostly driven by two large trends:

  1. In B2C, the change in habits of communication and consumption (whether in services, content, goods, etc.)
  2. In B2B, the necessity of innovation and digital transformation

I — B2C companies are and should be worried by what’s happening

B2C companies are and should be worried by what’s happening. A standard consumer will have to pay more for:

  • Moving: Transportation costs are still fully correlated to fossil energy pricing,
  • Eating: Fertilizer prices highly depend on energy costs and food is massively transported in our globalized economy, and
  • Housing: Interest rate increases always lead to a higher cost of mortgage or rent.

Consumers need to move every day, to eat several times a day and to sleep in a safe place every night. These needs are so fundamental that the necessary savings to fulfill them will be made, no matter what — while the Covid-crisis made us believe that a good Netflix subscription was on top of the Maslow pyramid, the current macroeconomics downturn reminds us of the true nature of human’s fundamental needs. Consequently, will people just subscribe to less online services? We can already see that Netflix has lost one million subscribers last quarter. People will probably buy less stuff they don’t really need, go less to restaurants and/or stop changing their phone every year etc. And one thing to expect, they might stop buying NFTs.

By the way, this is not yet visible because consumers are still spending their involuntary accumulated savings of the last 2 years in clearing out their backlog with a spree of post-covid IRL activities or summer holidays, after 2 mostly missed out years.

II — B2B looks and is safer

On the other hand, B2B looks — and is — safer. For most of the existing companies, it’s a matter of survival to invest in digitalization, unless of course they are born digital! Solid B2B Cloud companies are here to last. Nevertheless, the market will react differently based on the size of the companies they target.

The top end of the market is the kingdom of very large companies, the so-called Enterprises.

Enterprises will keep moving their software to the cloud, upgrade their platforms, increase their level of cybersecurity, adapt their organization to a more distributed workforce, etc. — no doubt. However, the procurement and legal departments will now be back in control of the pace of their tech investments and not every project will be vetted in the short term — ROI will be scrutinized, options will be benchmarked. I don’t expect churn to be an issue for quality software or cloud service providers but a slowdown in new bookings growth (accompanied by longer sales cycles) is likely to happen, especially in late 2022 and 2023 when budgets and business plans will be reworked with the new macroeconomics in mind.

For B2B Tech targeting SMBs, this is a very different landscape. The first issue with SMBs is that they are usually owned by very few people or a single family; their balance sheet is in many cases managed as the personal wallet of the owners. Remember, crisis lowers the “Who cares?” threshold of individuals; the same mechanism applies for SMBs. Even if the SMB needs to innovate and invest as a business, its owners will protect their current assets and short-term cash flows since these cash flows are directly paying their bills. They will react as consumers by unplugging whatever doesn’t look critical or could be replaced by a cheaper service, sometimes even at the expense of quality. And they will of course delay to better times their largest innovative investments or crucial transformation plans.

Furthermore, unless something dramatic occurs, most large companies can survive a few years of profit starvation or even strong losses. Even under the worst assumptions, large companies rely on the “too big to fail” effect and hope that the state, directly or indirectly, will bail them out before they burst into flames. Just look at how airlines or banks are managed for example. SMBs can’t always find a solution for their survival and unless a miracle happens, nobody will step forward to save any of them. Usually when a crisis happens, the bankruptcy rate for SMBs plummets. Yet another increasing churn factor on the table.

Finally, a new kind of SMBs became recently the best wanted early customers of any venture backed cloud company: their peers, the other venture backed companies! Many interesting new B2B cloud services started by surfing the innovators and early adopters segment populated by numerous startups which blossomed during the last few years. VC money subsidized VC backed revenues, leading to nicer growth trajectories, stronger valuation uplifts and an appetite for more investment. Remember the positive flywheel effect inevitably leading to a bubble then a burst? How do you feel this one could end?

The combination of these three factors makes me believe that churn will be the major threat for B2B tech companies addressing SMBs and/or VC backed startups. New bookings or upselling will have a hard time to compensate for that. Note that there is nothing new here again, the nascent SMB-focused tech sector unfortunately experienced that in the aftermath of the 2008 financial crisis. This also means that at some point the phenomena will end and the market will recover.

This could by the way significantly impact the recent performances in VC since SaaS companies targeting SMBs were 2021 darlings in the market and raised up-rounds after up-rounds, in seemingly short timeframes.

Note that this is only a point of view and obviously, there will be many exceptions: tech startups targeting Enterprise companies will not all be winners and SMB focused ones will not all have a hard time!

To conclude on a more positive note, I am not convinced at all that this is the end of the world for startups, VCs, B2B or even B2C tech, etc. I just believe that on one hand the market will focus on great performers providing recession-proof products and true irreplaceable value for their customers, and on the other hand, the period when companies or consumers were investing or buying tech services and products without counting is over. We are just back to our historical lottery game where not every ticket can be a winning one! We’ll need to select better at every stage of the venture journey, and pay the right prices. Let’s talk about valuations in the next chapter.

You can also find the 🇫🇷 version of this paper in Maddyness here.