The impact of economic developments on the Software & IT industry and outlook for 2024

The year 2023 has brought a series of significant changes to the global economic landscape, marked by a noticeable surge in interest rates, a considerable shift in valuation multiples, and heightened political uncertainty. In this article, we will explore how these changes are influencing the IT and software market. What impact do these evolvements have on the IT and software market and the companies within this market?‍

Recent multiple developments

One noteworthy trend in 2023 was the decrease in revenue multiples commonly used for the valuation of software companies. Historically, these multiples have served as a key metric for investors assessing the value of technology companies. The decline prompts a reassessment of how market dynamics are influencing investor sentiment and the perceived value of software companies. The decrease in both revenue and EBITDA multiples since 2021 can be attributed to a combination of factors, including the rise in interest rates and a shift in investor preferences. Investors are becoming more discerning in their evaluations, demanding stronger fundamentals and sustainable growth strategies from companies.

Decline in tech investments for 2 years

Another notable impact of the economic changes in 2023 was the two-year decrease in the amounts invested in the tech sector. Comparing the investment landscape in 2022 and 2023, a noticeable decline in financial commitments to tech-companies was observed. The reduced investment levels may be indicative of increased caution among investors, who may be reevaluating their portfolios in response to the changing economic environment. As economic uncertainty looms, investors are likely seeking a balance between risk and reward, leading to a temporary dip in tech sector investments.

What to expect for 2024?

The year 2024 started good with different investments in technology companies. After a challenging period, the market seems to stabilize and shows signs of growth. Also, at Pride Capital Partners we see a recent surge of new investment opportunities and acquisition targets for our portfolio companies. "With the emergence of new fundings and the halt in interest rate increases, optimism is returning to the market once more." says Lars van ‘t Hoenderdaal, Managing Partner at Pride Capital Partners.

Want to know more? Join us on the 11th of April in Amsterdam!

This was only a short recap on recent developments in the software sector. If you would like to hear more from experts as well as discuss the outlooks for 2024, feel free to join our Pride Inside Day on Thursday the 11th of April at Wicked Grounds in Amsterdam. During this event Ramon Schuitevoerder of M&A advisor CFI will give insights on recent market developments while, two founders of our portfolio companies, Omar Fouab (Archipel Academy) and Patrick Vanbrabandt (Carya), will talk more about their experiences in building out a software and IT company.

Click here to register for our event

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^{More information}

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^{Houtman, J., & Engel E. (2024). Techsector zoekt nieuwe balans}

^{Drazdou, F. (2024). Software Valuation Multiples: 2015-2024}

^{Houtman, J. (2024). Sterke jaarstart voedt optimisme over investeringen in techbedrijven‍}

^{Kleijngeld. J. (2024). Private equity laat veerkracht zien in volatiel 2023}