As we close the door on 2022 and look ahead to the new year, it's a great time to reflect on the past and make predictions for what's to come. It's always fun to throw some educated guesses about what's coming down the pipeline, and I think there are some exciting things on the horizon for all of us.
In this edition, I'll share my insights and give you my take on what to watch out for in the coming year in investing technology, and healthcare.
Let’s dive in!
Santa Won’t Be Bearing Gifts to Our Portfolios
Looking ahead to 2023, I expect a hard landing for the economy starting in Q2 or Q3, driven by stickier-than-anticipated inflation preventing the Fed to start cutting rates. As a result, we’ll see a further decline in consumer demand, corporate earnings, and job losses. On the brighter side, I expect the recession to be short-lived, driven by China’s reopening, dry powder, and relative job strengths.
I believe most of the impact of inflation and higher interest rates is priced in equity multiples, although there could still be some volatility moving forward. I see no urge in buying the dip aggressively until I see positivity stemming from a likely pause in interest rate hikes, or encouraging signs from corporate earnings amid consumer weakness.
It has been a long time coming, but 2023 looks to be the year that bonds will be back in fashion with investors. It's likely to be a bumpy ride due to central banks' tightening policies, a volatile global economy, and ongoing political uncertainties. Despite these challenges, I see opportunities for the bond market to provide investors with attractive yields at lower risk than we've seen for several years. With the macro backdrop in mind, I favor duration and credit quality in 2023.
As we approach 2023, I view the economic prospects of the U.S. more favorably compared to those of Canada. The Canadian consumer is more levered and represents a bigger part of its economy. Therefore, Canada will experience comparatively more pain in a high-interest rates environment, especially since Canadians are tied to variable mortgage rates. I expect this to hit hard into 2023 and eventually 2024 when consumers will be forced to renew their mortgages at a much higher rate. I also see some opportunities in emerging markets, driven by China’s reopening. In terms of style/factors, I favor GARP and cyclicals over defensives and dividend-heavy companies (i.e. utilities, REITs).
I believe we’ll see an explosion in M&A transactions in the back half of 2023. Once uncertainty fades, cash-rich companies will take advantage of depressed multiples to make strategic acquisitions. More precisely, I see large banks acquiring fintech startups, big pharma’s acquiring late-stage biotech firms, and big tech consolidating the cybersecurity industry.
I expect many PE-led buyouts in the technology realm. Indeed, I would not be surprised to see the likes of Thoma Bravo, Accel-KKR, and Francisco Partners take advantage of the discrepancy between the public and private market multiples to acquire large SaaS companies. We have already seen that movement emerging with the announcement of Coupa’s $8 billion buyout by Thoma Bravo on Dec. 16th. For the private equity market as a whole, I expect further challenges in 2023 on the behalf of nervous financing from the banks.
2023 will be the basis of a new normal for venture capital fundraising, with materially lower valuations all across the stages. Many first-time GPs will be forced to lay off employees, unable to raise second funds. Furthermore, I expect some GPs to return dry powder to their LPs rather than invest it, as the best founders will decide to await multiple expansions before raising new rounds. On the brighter side, certain areas of VC funding will likely stay hot — AI, Web3, and Climate Tech.
As a reminder, none of the above should be considered financial advice.
If You Don’t Believe in Tech, You Won’t Receive Innovation
I expect further contagion in crypto, leading to a slowdown in most categories (DeFi, Web3, DAOs). However, I believe 2023 will hold the rise of web3 gaming, with a few high-quality releases catapulting the space into the mainstream. I also expect some traction around decentralized social graphs, zero-knowledge systems, and decentralized climate tech.
2023 will be the year of mainstream AI adoption. People are only starting to play with generative/predictive AI, and we have already seen speech-to-text, text-to-images, or images-to-videos. With GPT-4 available publicly, a new ecosystem of startups ranging from consumer apps (gaming, media, design), to enterprise products (fintech, SaaS, code, biotech) will emerge. Furthermore, as AI becomes increasingly democratized, incumbents will need to differentiate based on winning mission-critical workloads, as they did in the last great platform shift from on-premise to cloud.
Contactless, autonomous shopping and delivery will be a huge trend for 2023, with the help of AI and fintech.
Gene editing has been around for a few years (i.e. CRISPR) but was way too expensive. As of 2023, I believe the cost per genome will be low enough to kickstart mass enterprise adoption, with gene editing used to 1) correct DNA mutations, 2) solve food allergies, 3) increase crop health, and 3) edit human characteristics.
We’ll see a breakthrough in quantum computing technology in China, which will raise the alarm in the U.S. to double down on their investments to win the race. As a reminder, QC uses subatomic particles to create new ways of processing and storing information. The technology is expected to enable a computer capable of operating a trillion times more quickly than the fastest processor available today.
Secret Santa’s
Sheryl Sandberg will become CEO of Twitter.
Apple will get regulatory heat for its app store monopoly.
Google will release a ChatGPT competitor and launch a fund to incentivize developers to build using their API.
With cookies slowly disappearing, social platforms will become the natural place for product discovery & commerce. As a result, the creator economy will skyrocket.
The war in Ukraine will end by mid-summer, with no clear winner. Both sides will agree to stop fighting and make concessions.
Substack will launch an ad network, and as a result, we’ll see many renowned journalists leave traditional newspapers.
The Bruins will win the 2023 Stanley Cup, while the Canadians will perform poorly in the second half of the season and draft Conor Bedard as the first overall pick.
In the Holiday Spirit
As a Christmas present for you guys, I've curated below a list of the free tools I use daily. Try some of them out and let me know what sticks.
ChatGPT: A chatbot that uses GPT-3 (a powerful artificial intelligence language model) to generate human-like responses to user inputs. Spoiler alert, I used this tool to assist me in writing this piece.
Curius: A tool for organizing and curating online content.
Deepl: A machine translation tool that can translate text and documents between languages.
Grammarly: A free online writing assistant.
Loom: A screen recording and video messaging tool that allows users to easily record and share videos of their screen or webcam.
Notion: A productivity and organization tool that allows users to create notes, tasks, wikis, and databases in a single workspace (i.e. OneNote on steroids).
Product Hunt: A platform for discovering and sharing new products and startups.
Tab Suspender: A tool that automatically suspends or hibernates inactive tabs on your browser to save memory, battery, and heat.
Wordtune: A tool for improving the readability of text by identifying and fixing common writing issues.
12ft: A tool that removes paywalls and get you free access to the best articles.
I hope you enjoyed this article, and as always, I'm open to hearing your thoughts and predictions for 2023 as well. Let's make it a great year together!
Cheers,
Benjamin
Great job with this one Ben. I really enjoyed reading it!
Thanks Gab!