What a decade this year has been. While prediction pieces always come with a large asterisk because no one knows literally anything about what may play out in the future — such as massive shocks to large startup sectors — our perspectives about 2022 have aged … interestingly.
Last year, Natasha Mascarenhas, Alex Wilhelm and Anna Heim spotlighted three different startup theses that may define the coming 12 months. Now, we’re fact-checking how accurate those predictions were, plus what we’d change about our perspectives. We know. Humble.
For a light holiday riff, we’re talking about what happened with the M&A space, open source and usage-based pricing. Let’s have some fun!
Natasha: Let’s talk about acquisitions
Last year, I predicted that M&A would evolve to include a riskier type of ambition. I cited Twitter’s hunger for a Slack competitor and Nike’s infatuation with NFT collectibles. I even reminded founders that startups need to “stay disciplined even amid a cash-rich environment” instead of “spinning up lukewarm climate and web3 strategies because that’s what they think their cap table wants to hear.” (That culture and technology are hard to integrate at the same time).
All to say, I was manifesting a quirkier M&A landscape with big swings, one that would cash in on the maturation of a startup market that boomed during 2021.
Today, that thesis has aged interestingly. Honestly? It might just be me, but I feel like there weren’t any surprising acquisitions this year that took over the news cycle and threw the future of a beloved social media platform into question. (Well, there was this one.)
I am not saying that I manifested Elon Musk buying Twitter, but it certainly checks off my prediction that we may start to see more atypical acquisitions start to play out in 2022. In this case, the buy, which officially closed less than a month ago, did show us how hard culture and technology are to integrate at the same time. Of course, Twitter was not acquired by a company. It was acquired by a billionaire who has lots of thoughts, many of which raise concerning questions about the future of free speech and the safety of marginalized populations.
Twitter aside, the other big buy of the year was Adobe’s $20 billion purchase of its biggest competitor, Figma. While it was surprising to see the two companies team up, I’d still categorize the transaction as a boring acquisition. The synergies are obvious. The blending makes sense. It’s not rocket science to understand why an iconic digital design company would want to be on the same team as the innovative startup leader.
Ultimately, I’ll admit that I had a very 2021 prediction for 2022. The two above acquisitions were outliers in an otherwise dreary market over the last year. Due to the downturn, we saw that acquisitions were less about big swings and more about soft landings. Think less expanding into an experimental product line and more doubling down on what works. But hey, I warned about discipline, didn’t I?
Alex: Hey, I think that I finally got something (mostly) right!
Nostradamus I am not, so when I went back to check on our year-ago entry, it was nice to discover that for once I do not look like an utter twit in hindsight. Here’s what I predicted (edited lightly for flow):
Open source software with a commercial entity attached is the clear next step for the [startup] trend. Customers can now directly contribute and shape the underlying tech while allowing the startup to handle some of the icky bits and much of the coding heavy lifting.
It’s no surprise that we’ve seen more and more startups barking up this particular tree. I think the model is going from a growing subset to a majority next year as developers drive more purchasing decisions. Who doesn’t want to buy code that they can inspect themselves?
There are a few ways to vet my prediction. A quick news scan gives us a pretty good look into the current state of play as it relates to open source software (OSS) startups. In the last few days, TechCrunch covered EngFlow raising $18 million for its open source work, Payload raising $4.7 million for its open source headless CMS, and Narwhal raising $8.6 million for what we described as “the popular monorepo-focused open source Nx build system for JavaScript code.”
Other recent examples abound. Heck, we’re even seeing a previously forgotten open source social service take on Twitter.
But we’ll want something a bit more concrete to vet my prediction, so let’s turn to PitchBook data. Companies tagged in its database as “open source” raised 49 rounds in both Q3 2021 and Q4 2021, a figure that dipped to 43 in each of the first two quarters of 2022. A slightly slimmer 38 rounds for the company cohort were recorded in Q3 2022, and 20 have been reported thus far in the fourth quarter, implying that we shouldn’t expect a decline in the final quarter of 2022 and could in fact see more rounds in the current three-month interval than in prior periods.
More funding activity means more startup activity, as the former fuels the latter. So, we’re good, yeah?
Mostly, but not entirely. The amount of capital raised by open source startups in the above-listed rounds is highly variable, undercutting our neat picture that as the venture market slows sharply, the pace at which new venture rounds are executed into open source startups is slowing far less.
However, it appears that Q4 2022 could be a fertile period for dollars raised by open source startups. So, I am content to give myself a “mostly right” here. Not that I deserve any real praise. Noting that an accelerating trend may continue is hardly crystal-ball stuff, yeah?
I’ll try something more outlandish for next year!
Anna: Good timing to think about UBP
I don’t mean to brag, but my 2022 prediction was pretty accurate. I don’t know for sure whether a “majority” of SaaS companies adopted usage-based pricing (UBP) this year, but founders are increasingly considering the pricing model.
As you may remember, UBP consists of charging users based on how much of the service they consume, as opposed to, for instance, billing them per seat, i.e., per user count.
UBP seems like a good fit for the times we are in: A recession makes users less willing to pay for products and services they are not actually using — making usage-based ones less likely to be culled.
However, purely UBP can be scary for end users who’d rather know in advance how much they’ll owe and for companies worried about jumping straight into a whole new pricing approach.
As a result, hybrid forms have emerged, in which bills also have caps and other tweaks. But if we accept these as still belonging to UBP, this trend is definitely on the rise.
“Chargebee has seen an increase in startups changing their pricing models all together. Across their customer base, there has been a 30% increase in startups offering a usage-based model,” VC firm OpenView noted in the SaaS Benchmarks report it released alongside the subscription management company.
What are you thinking about for 2023? Let us know in the comments!
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