Was chatting with a VC friend earlier this week where we were discussing the US-India corridor and what the future looks like for cross-border SaaS from India.

During the convo, I ended up saying this – “I can just feel that the ground seems to be shifting in a big way for tech and most people aren’t fully recognizing it”. Btw, I repeated this line to my better half the next day in some other context too.

It just feels like a lot is changing at the same time, both macro and micro, and we as tech workers caught up in the daily grind of keeping the ship afloat in our businesses and personal lives, aren’t fully realizing how big some of these shifts are and how they will massively impact our futures.

Consider this laundry list of things unfolding as I write this (sorted from macro to micro, but in no particular order of importance):

1/ Military conflicts

As the world barely came out of Covid, it’s now faced with multiple global conflicts – Russia-Ukraine, Israel-Hamas, Red Sea, and now Iran has frikkin’ fired missiles at Pakistan (who would have thought?).

In the medium to long term, we are also staring at other potential standoffs like China-Taiwan, China-Japan, India-China, and more fronts in the Middle East.

While they might seem distant, these geopolitical tensions can have an indirect economic impact, especially on inflation and cross-border activity.

2/ Social tensions

The Israel-Hamas conflict is seeing side effects on the streets in the US. Who would have thought that top Ivy League campuses like Harvard would see active anti-semitism tensions?

This tension has powerful political and economic actors at the center and therefore, can have a second-order yet decisive political impact, especially with the 2024 Presidential elections around the corner.

3/ Anti-immigration

The US is dealing with a massive illegal immigration problem, with videos of thousands of people crossing the border via wall breaches going viral. Even other developed countries like the UK and Canada are dealing with a major rise in immigration.

In times of weak macros, high inflation, and a rising perception of hardship, I expect immigration to be a major election issue this year, particularly in the US.

4/ De-globalization

Candidly, I have been a big beneficiary of massive tailwinds of globalization starting in the early 2000’s. Many of the companies I worked for in India served US customers. The venture firm I worked for had US LPs. I moved to the Bay Area and became a global expansion operator. My startup had a distributed team across 4 countries.

At present, it definitely feels like these globalization tailwinds have weakened considerably. I am reading about Indian founders struggling to get US visas, the EU clamping down on migration, and China falling out of favor in terms of global trade and people movement.

If these tailwinds continue to weaken, this is a massive change in a key assumption that underlies the career plans of many global tech workers, especially those from emerging markets. To get a sense of this, check out this awesome thread on X that shares how Indian Masters students in the US will struggle to find jobs this year.

5/ The decline of China

China has come out in the open as an overtly aggressive competitor to the West. At the same time, Xi is executing a drastic socio-economic reset domestically that has decimated an earlier-vibrant tech sector. Noted economist Ruchir Sharma recently cited how in its peak years, China used to attract ~$100Bn of FDI in a single quarter, and now, its FDI has de-grown in Q3’2023.

I remember being in awe of China’s infra, talent and execution focus while working at Alibaba. That just seems like a dream now. I never imagined that I would read headlines about 21% unemployment and disillusioned youth in an energetic economy like China.

What are the repercussions of this? As Western companies pull out investments from China, this is an opportunity for other emerging markets like India and SEA to capture parts of this supply chain being diversified.

6/ Higher Interest Rates

From operating in a near-zero interest rate environment for more than a decade since GFC, the Fed has now executed the steepest interest rate ramp ever.

When the cost of capital is low, an economic party begins. Public stocks appreciate given the denominator effect. People borrow more so housing demand goes up and homeowners feel richer. Companies lever up and aggressively invest in physical infra and talent.

At the same time, investors start searching for higher yields given low risk-free rates, thus boosting illiquid-high-return asset classes like venture capital and private equity.

While this post-GFC ZIRP party was in full swing, Covid took it to a new crescendo courtesy of additional QE and stimulus packages. As everyone in the party reached peak highs, a neighbor (inflation) called the cops (Fed), and the party abruptly ended (interest rates rose from 0.25-0.50% in Mar’22 to 4.75-5.00% in Feb’23).

While the highs of the ZIRP party have been gradually coming off through 2022 and 2023, who knows what the long-term impact of this prolonged loose monetary policy will be? Millennials like me have largely worked and grown up in ZIRP, creating our goals, expectations, and lifestyles according to what we saw. Are we ready to re-configure our lives in this new era of higher interest rates?

7/ Tech org restructuring

The recent Big Tech layoffs in the Bay Area are much more significant than many people imagine. For the last 15 years, this compact region has been used to massive jobs getting created by default, salaries rising on auto-pilot, and major equity upsides being captured by RSUs and options. Forget layoffs, anyone working in the Valley since 2010 has only seen an era of multiple job offers and compensation ramps.

This scenario seems to be changing at a highly disruptive rate. Elon catalyzed it by doing deep RIFs in X, including eliminating entire functions altogether. Across mid and large tech companies, am now seeing orgs getting drastically flatter, classic white-collar functions like product management, ops, program management etc. either getting extremely lean or even going away altogether.

I fear that unless a tech worker can either build (code) and/ or sell, they will struggle to see adequate demand for generic tech ops skillsets. At the minimum, this will reflect in drastically restructured compensation packages.

8/ Rise of AI

I am lucky that as a venture investor, I get to see cutting-edge products before the world has even heard of them. From what I am seeing in terms of AI-powered products, both infra and application layer, I fear that many jobs as we know them will get automated away rapidly.

• Individual developers and software dev shops have already started using AI for testing and debugging code. This was a job typically done by entry-level IT services talent in offshore centers like India.
• Making creatives for digital ads and other low-complexity design tasks are being automated away rapidly.
• Google has been drastically cutting down on its ad sales team, expecting a lot of that work to get automated by AI.

Ever since I entered tech in 2011, I have seen engineers be the kings both in startups and big companies. While outstanding engineers will always be gold, the last decade saw even mediocre engineers with basic skill sets reap massive financial rewards mainly due to the supply-demand imbalance.

As we enter the age of AI agents, I am not sure if this will be the case going forward. PS: for more insights on how the AI landscape is playing out, check out my AI Musings series – #1 How The Odds Are Stacking Up?, #2 OpenAI DevDay and #3 LLMs for Beginners.

9/ Bitcoin becomes legitimate

The biggest news of 2024 already is the SEC green-lighting Bitcoin ETFs (see my post ‘Bitcoin ETFs and The Challenges of Digital Gold‘). From being an edgy piece of technology for innovators in 2013, to being discovered by early adopters like myself in 2017, hitting all-time-highs in 2021, then seeing large-scale frauds like FTX in 2022, the SEC suing Coinbase in 2023, and now, getting recognized by the same SEC as a mainstream asset class – whew, who would have thought?

Again, I don’t think most people realize the significance of this move. Over a decade, pure, grounds-up, community-driven adoption of Bitcoin by common people has created a new asset class, helped it travel from Silicon Valley to Wall Street, and forced the regulator to recognize it.

What does Bitcoin going mainstream say about our current monetary systems? Will it change the balance of power between the wealth hoarders (Boomers) and the wealth aspirers (Millennials and Gen Z)? With cash fading away globally in various respects, is this the dawn of pure Internet money? Are there going to be any other ripple effects of the expected mainstream adoption of Bitcoin going forward?

I feel these are open questions with massive implications for who will hold wealth and power over the coming decades.

10/ Startup and VC shakedown

The last 2 years have been the most turbulent for the startup ecosystem since GFC. Venture financing in the US has been on a major downward slide, from ~$348Bn in 2021, to ~$242Bn in 2022 and then, another estimated 30% drop to ~$171Bn in 2023. Startup shutdowns have hit all-time highs, and given the drastic reset in public market comps, valuations in both early and growth-stage financing have drastically come down.

As recently as Q1 2022, just 5.2% of new fundings on Carta were down rounds. In Q3 2023, that figure was 18.5%, continuing a nine-month stretch in which nearly one out of every five rounds raised by startups resulted in a decreased valuation.

Carta

This shakedown is reflected in the VC ecosystem too. A major Boston-based VC firm OpenView with $2.4Bn in AUM abruptly shut down in Dec’23. More recently, hard-tech VC firm Countdown Capital wound down operations, stating the following reason – “funding industrial startups is not inefficient enough to justify our existence, and larger, multi-stage venture firms are best positioned to generate strong returns on the most valuable industrial startups”.

I believe that the 2023-25 vintage of startups will be built with very different philosophies, fundamentals, and capitalization strategies. In parallel, the 2020-21 vintage startups will need drastic re-wiring that in most cases, might just not be possible, leading to large-scale write-offs (read my post: Cheetah in the Rainforest: 2021 Vintage of Venture).

Another related view that I recently posted on X – “access to capital was widely considered a competitive edge but it now looks like a view that should be carried with contextual caveats eg. applicable only in low cost of capital macros and in specific types of startups like those with network effects”.

11/ Vertical SaaS headwinds

Within the venture landscape, I wanted to do a quick double-click on vertical SaaS.

With weak macros and the rise of AI, most point SaaS solutions have seen intense customer headwinds over the last 3 years. Startups selling to other startups have been hit particularly hard (many YC companies fall in this category), given the customers themselves are doing brutal cost-cutting.

Enterprise customers too, have been under pressures of layoffs and reducing general opex, hence creating push-back on the per-seat pricing model. See this prescient thread from David Sacks in late’2022 when SaaS was bottoming out.

Based on anecdotal conversations, am also seeing many customers now focusing on reducing software fragmentation and trying to consolidate tech stacks to bring down costs and complexity. In a sense, this seems to be a move away from buying a portfolio of unbundled SaaS solutions, and towards buying bundled software that addresses multiple use cases from the same vendor. In fact, I feel there is an understated opportunity here for startups with strong PMF to really push up their ACVs by solving multiple use cases for customers.

The biggest question mark is on the future of Covid-boosted products. Hopin, one of the poster children of the era, sold for peanuts to RingCentral. Point SaaS products in productivity, sales enablement, and workflows accelerated in 2020 but with the current customer behavior, it remains to be seen if they are vitamins or painkillers, and whether their differentiation and value to customers is strong enough to justify their independent existence.

Closing thoughts…

It’s probably the January-effect but this week got me organically thinking and connecting the dots on all that is unfolding in the world right now. The venture investor in me is part-excited for all the new opportunities this change is going to bring with it, and part-concerned for how both myself as well as existing portcos need to navigate this massive change.

Having adaptability and a growth mindset is going to be key. I have a strong resolve to be on the right side of this change, and also working to transfer this conviction and learning to the founders I work with.

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