Sector Insights
We explored the underlying business models, customers, technology and value proposition of the Top 100. Combined, these factors help paint a picture of the success factors for 2022/2023’s stellar Cloud Challengers.
Last year, HR/employee collaboration tools made up the largest contribution to our Top 100. Big Data, DevOps and Healthcare closely followed.
In 2023, HR/productivity tools are still attractive (21%). Software for finance (22%) and compliance (14%) have shot up strongly. DevOps/DevSecOps (14%) remains an attractive area of startup growth.
We commented last year that we were surprised that "FinTech as a Service" was underrepresented, despite us seeing plenty of demand from startups. It seems that supply is now catching up fast; for example Procuros (#6), which automates the operations surrounding B2B transactions by connecting trade partners with each other.
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Finance software will likely focus on cost control and budgeting accuracy. LiveFlow (#29), for example, aims to eliminate manual data entry with automated financial information updates and the creation of spreadsheet templates to empower CFOs.
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Compliance software will be in vogue as online risks continue to trend high and might increase in a down market. A good example is Soveren (#11), which detects and remediates the unapproved or unlawful collection of users’ sensitive data.
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DevOps software will further reduce the number of tech staff needed to develop or maintain tech, as shortages of tech talent continue. Witness companies like Grafbase (#13), which makes it easy to build and deploy GraphQL backends, speeding up the transition from ideation to production without spending valuable time on infrastructure.
This year’s data shows that a significant proportion of our top 100 companies sold to the full breadth of the market of desk workers (small to large enterprises; 35%). Our theory is that the rise of product-led growth (PLG) allows everyone to consume software, which enables the successful targeting of multiple customer size segments.
Websites targeting clients of a specific size segment (90%) and/or persona (40%+) are more prevalent in the top 20.
Across the Top 100, specific buyer personas are mentioned only on one third of website front pages, which could signal a move in the market away from delivering tech for siloed departments and roles. It could also mean that many types of tech are right for workers in a broader set of contexts. Konfir (#21), for example, which provides verification of UK workers’ identity and right to work, targets employers, background checkers, payroll and employees themselves.
Most of the technologies behind the top 100, rely on:
1. API connections
2. Automation (i.e. logic rules for the manipulation and handling of data), and/or
3. Big data
This suggests that this is the year that tech innovation focuses on efficiency fed by large lakes of data, and heralds the consumerisation of AI in the months to come.
Somewhat surprisingly, as Web 3.0 is still only just beginning to find its feet, the top 20 features a relatively high number of Web 3.0 companies. Examples include: Otterspace (#7), which helps set up the infrastructure for decentralised autonomous organisations and the distribution of NFT incentive badges; and SaltoX (#12), which provides token incentive plans for remote companies.
As we move into a down cycle, startups offering a clear cost reduction (including time efficiency) proposition for their customers remain the dominant drivers of value this year.
The number of companies that lack focus on either revenue increase or cost reduction has fallen. We see the cause to be two-fold:
1. There are fewer healthcare companies represented this year, as the focus on Covid has waned in Europe, and
2. Due to strong inflation/fears of a recession, we also see a slight drop in companies focused on delivering or unlocking social impact. One of the few impact-focused companies in the top 100 this year is Pledge (#27), which focuses on carbon measurement, analytics and offsetting.
Standard SaaS subscription business models remain most popular among our cohort (61%, excluding the freemium tier). Yet, we do see a slight increase year-on-year in other revenue models, typically:
- Versions of more usage-based business models; moving towards “pay-as-you-go”
- Revenue layers stacked on top of each other; giving users more options to meet their needs
There is a large uptick in the Product Led Growth (PLG) motion, as indicated by the 'freemium' options offered by many startups. These freemium plans encourage frictionless, online sign-up with a rapid demonstration of value before committing to a monthly paid plan. Openline (#1), for example, is an open source platform for managing customer data and is currently offering the first one thousand contacts free of charge.
Just like last year, we continue to see most functionality weighted to the back end of the software (i.e. the software is mostly driven by automation and deeper IP and users lack the ability to manipulate the software) compared to front end or infrastructure. We would expect this to be the case, as our filtering excludes some commercial models that are more front end facing (e.g. marketplaces).
Another trend is the heavier weighting towards companies focused on infrastructure building (rather than front-end development). We find this particularly exciting, as infrastructure companies could produce fundamentally new approaches to existing processes. For instance, Formance (#23) offers a ledger-as-a-service which allows users to get a consolidated and real-time view on all payment flows through their software development kit.
