Tech trends for startups in 2023

Top trends for startups in 2023

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It’s fascinating to see how technology has permeated every industry to become the backbone of not only a thriving and bullish economy, but also that of recession. Technology is no longer an alternative but a horizontal, working across every aspect of the economy. While talk of recession has been ongoing in 2022, the underlying sentiment of innovation continues to be dominant. The World Economic Forum estimates that 70% of new value created globally over the next 10 years will be based on digital business models. This validates the growing appetite for innovation in the current macro environment. In 2023, for the first time, more than half of GDP will be driven by “digitally transformed” enterprises, according to Statista.

Innovation is the name of the game when it comes to driving change at a rapid and massive scale and that’s where startups come in. The innovative economy today is better equipped to weather the impact of an economic downturn. I recall conversing with a founder in early 2022 where they shared that they were raising a Series A round and were confident of being oversubscribed. Fast forward to November 2022 and they had 12 investors on the cap table compared to their initial goal of three. Continued capital influx, although permeating in the market at a slower pace, is a signal of lower risk path to return. It further validates that the appetite for innovation and new business models is still there but is more risk averse. While the interest rate increases have been the primary cause of equity valuation declines in public and private markets especially in the US, they have created a safer way for investors to lock in positive returns in other asset classes including investments in early-stage startups. This means more deal flow in the startup space!

In 2022, many startup founders expected to be focused squarely on post-pandemic growth. Instead, most are now eyeing the threat of recession and managing the impact of persistent inflation, as well as dealing with crises in supply chain, energy sourcing and digital skills. Which brings us to top trends for startups in 2023 in the startup space:

Tech trends for startups in 2023

AI all around

AI is no longer a luxury but becoming more of a commodity. The next wave of innovation in this space will be no-code AI solutions and as-a-Service platforms. Retail is predicted to be reaping the maximum benefits in this space with contactless, autonomous shopping and delivery, making it a huge trend for 2023. The democratization of AI makes it accessible to everyone, not just tech-savvy professionals. This means there’s little to no barrier to entry when it comes to embracing AI in everyday business processes. The release of ChatGPT shows just how AI technology is scratching the surface and will transform the way we use online search engines. This will also open doors for industries where we witnessed minimal growth leveraging AI in transportation, aeronautics, etc.

One of our Microsoft for Startups Founders Hub members, Deft & Tact, is leveraging AI to explore new ways of interacting with users.  The company, based in Hyderabad, India, is building extended reality (XR) immersive experiences to engage and influence customer decisions.

Startups in 2023 - VR

Metaverse

The definition of the metaverse has continued to evolve in the last couple of years. The next iteration of the internet will be more immersive with real-time interaction, bringing the world even closer than today. While most of the startups that are surfacing in this area are relatively early stage, there is lot of curiosity and enthusiasm to enter the metaverse and explore. Per an extensive report published by McKinsey & Company, the metaverse might see consumer spending reach $5 trillion by 2030.

A convergence of mixed reality, artificial intelligence, immersive digital space, and real-time communications stack together to create metaverse experiences. My pre-teen son knows more about metaverse than most of us since he has been exposed to the concept early on via gaming. It is a technology that resonates with generations where the total addressable market size is only expanding.

Depending on the use case, not all technologies may be necessary to produce value, but diversification of existing business models in the metaverse space will be a super interesting space to follow. 2023 will witness increased deal flow in the startup space to drive value for enterprise companies either via partnerships or proof of concept. Non-fungible tokens (NFT) in the metaverse is another stream that has exploded in 2022. NFTs enable internet users to own the digital assets purchased within the metaverse. This is recorded on the blockchain network and represents the real value of decentralized finance (DeFi). NFTs will disrupt the way we certify, validate, execute contracts, process applications, etc. NFTs will also lead to greater sustainability converting processes from paper to digital. Imagine the total addressable market right there!

I’m very excited about this space and have a long list of favorites! We are already beginning to see big brand names in retail invest heavily in this space to impact user experience and drive revenue. I am looking forward to seeing this space permeate other top verticals across the tech sector in the next few years.

Companies like Betterverse, a Microsoft for Startups portfolio startup working in the metaverse to encourage charitable giving, will be well poised to take advantage of this market trend, and we expect more startups to follow suit. 

Blockchain on steroids (Web3)

In 2022, many investors and thought leaders defined Web3 as a culmination of Web2 and an emergence of a brand-new revenue stream in the market. The big question is how different is Web2 from Web3? And what is Web3 after all? In the next few years, large enterprises will look to startups for partnerships in (re) defining core business models or mergers and acquisitions or simply organic growth in this space. What is exciting about this space is that the innovation is not in cryptocurrency, but in blockchain technology.

Blockchain integration being decentralized will undoubtedly work its way and be transformed by Web3 into the way we do business, collaborate, transact, organize and validate. From an investment spectrum, this is one area that is poised to attract more funding both for metaverse-related projects and metaverse mergers and acquisitions deals. I’m excited about the disruption in this space as more and more companies adopt Web3 as a core business strategy which will fundamentally change the way we do business, especially in the B2C space. This will create room for more innovation as businesses look to capitalize on growing consumer needs and competitive pressure.

First Light Games is a London-based mobile game developer and member of Microsoft for Startups Founders Hub, building the next generation of battle royale fighting games on Web3. Their first release, Blast Royale, is currently in open beta.

Sustainability

This is one of my personal favorites! I have been observing this space closely for almost a decade now and it’s great to see phenomenal growth with big checks coming in from investors. I have always said that while commercial startups offer a tangible ROI on investment dollars, sustainability and social impact startups accrue ROI via a ripple effect on our economy, society and community. This space only keeps growing and getting better every year.

Enterprise customers and investors are increasingly looking for green credentials, and we will see more of this in 2023. The recent capital and talent relocation to various climate-related markets brought exciting changes in the stakeholders involved, market dynamics, incentives, and economics. Electric vehicle (EV) startups have massive growth potential, and lithium battery technology is getting better and better making it a mainstream choice for customers. Advanced photovoltaics and microinverters are improving solar efficiency. A nuclear fusion breakthrough was recently announced making room for clean, limitless energy- very exciting!

startups in 2023 - sustainability

In 2023, we’ll see an increased focus—from investors, philanthropists, and government—on buying more time for communities and ecosystems as the impacts of climate change play out on a larger scale and with greater intensity. We will also see a continued push toward making supply chains more transparent, as consumers demand that the products and services, they invest in are energy efficient and backed by more sustainable technology.

Fruggr is a great example of  Microsoft for Startups Founders Hub portfolio company focused on sustainability. They help other companies measure their footprints and dynamically manage performance to deliver continuous improvement.

Improving diversity and inclusion

The buck does not stop with funding diverse and underrepresented founders. We must ensure that these founders have access to networks, tools and mentors who they can look up to and leverage during their journey. This continues to be a challenge with founders who are women, regardless of the stage their company is at. According to a recent study by Pitchbook, companies with at least one woman founder have raised about $38B in funding in 2022, while startups with only women founders have garnered $4.3B. These both represent sharp declines from 2021, although they are still the second-highest annual totals on record. As we continue to talk about bringing more women founders into the fold of entrepreneurship and innovation, I hope we walk the talk of not only funding women-founded startups but providing mentorship and support infrastructure for women and under-represented founders.

As capital allocators hit pause and valuations rebase, companies risk running out of runway. Looking at the glass half full, there is tremendous opportunity for continued innovation across verticals especially supply chain, fintech, healthcare and retail. Startups will continue to be a catalyst for driving change, and the race for top talent in tech will get even more fierce. I’m optimistic that 2023 will bring in a new energy into the innovation spectrum in Silicon Valley and across the globe.

Wishing you all a serene, healthy and an innovative 2023! See you in the field!

To get access to all the technical and business benefits available to members of Microsoft for Startups Founders Hub, sign up today.

 

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Top trends for startups in 2023

Tech trends for startups in 2023
Microsoft for Startups, Founders Hub

Open
to anyone with an idea

Microsoft for Startups Founders Hub brings people, knowledge and benefits together to help founders at every stage solve startup challenges. Sign up in minutes with no funding required.

It’s fascinating to see how technology has permeated every industry to become the backbone of not only a thriving and bullish economy, but also that of recession. Technology is no longer an alternative but a horizontal, working across every aspect of the economy. While talk of recession has been ongoing in 2022, the underlying sentiment of innovation continues to be dominant. The World Economic Forum estimates that 70% of new value created globally over the next 10 years will be based on digital business models. This validates the growing appetite for innovation in the current macro environment. In 2023, for the first time, more than half of GDP will be driven by “digitally transformed” enterprises, according to Statista.

Innovation is the name of the game when it comes to driving change at a rapid and massive scale and that’s where startups come in. The innovative economy today is better equipped to weather the impact of an economic downturn. I recall conversing with a founder in early 2022 where they shared that they were raising a Series A round and were confident of being oversubscribed. Fast forward to November 2022 and they had 12 investors on the cap table compared to their initial goal of three. Continued capital influx, although permeating in the market at a slower pace, is a signal of lower risk path to return. It further validates that the appetite for innovation and new business models is still there but is more risk averse. While the interest rate increases have been the primary cause of equity valuation declines in public and private markets especially in the US, they have created a safer way for investors to lock in positive returns in other asset classes including investments in early-stage startups. This means more deal flow in the startup space!

In 2022, many startup founders expected to be focused squarely on post-pandemic growth. Instead, most are now eyeing the threat of recession and managing the impact of persistent inflation, as well as dealing with crises in supply chain, energy sourcing and digital skills. Which brings us to top trends for startups in 2023 in the startup space:

Tech trends for startups in 2023

AI all around

AI is no longer a luxury but becoming more of a commodity. The next wave of innovation in this space will be no-code AI solutions and as-a-Service platforms. Retail is predicted to be reaping the maximum benefits in this space with contactless, autonomous shopping and delivery, making it a huge trend for 2023. The democratization of AI makes it accessible to everyone, not just tech-savvy professionals. This means there’s little to no barrier to entry when it comes to embracing AI in everyday business processes. The release of ChatGPT shows just how AI technology is scratching the surface and will transform the way we use online search engines. This will also open doors for industries where we witnessed minimal growth leveraging AI in transportation, aeronautics, etc.

One of our Microsoft for Startups Founders Hub members, Deft & Tact, is leveraging AI to explore new ways of interacting with users.  The company, based in Hyderabad, India, is building extended reality (XR) immersive experiences to engage and influence customer decisions.

Startups in 2023 - VR

Metaverse

The definition of the metaverse has continued to evolve in the last couple of years. The next iteration of the internet will be more immersive with real-time interaction, bringing the world even closer than today. While most of the startups that are surfacing in this area are relatively early stage, there is lot of curiosity and enthusiasm to enter the metaverse and explore. Per an extensive report published by McKinsey & Company, the metaverse might see consumer spending reach $5 trillion by 2030.

A convergence of mixed reality, artificial intelligence, immersive digital space, and real-time communications stack together to create metaverse experiences. My pre-teen son knows more about metaverse than most of us since he has been exposed to the concept early on via gaming. It is a technology that resonates with generations where the total addressable market size is only expanding.

Depending on the use case, not all technologies may be necessary to produce value, but diversification of existing business models in the metaverse space will be a super interesting space to follow. 2023 will witness increased deal flow in the startup space to drive value for enterprise companies either via partnerships or proof of concept. Non-fungible tokens (NFT) in the metaverse is another stream that has exploded in 2022. NFTs enable internet users to own the digital assets purchased within the metaverse. This is recorded on the blockchain network and represents the real value of decentralized finance (DeFi). NFTs will disrupt the way we certify, validate, execute contracts, process applications, etc. NFTs will also lead to greater sustainability converting processes from paper to digital. Imagine the total addressable market right there!

I’m very excited about this space and have a long list of favorites! We are already beginning to see big brand names in retail invest heavily in this space to impact user experience and drive revenue. I am looking forward to seeing this space permeate other top verticals across the tech sector in the next few years.

Companies like Betterverse, a Microsoft for Startups portfolio startup working in the metaverse to encourage charitable giving, will be well poised to take advantage of this market trend, and we expect more startups to follow suit. 

Blockchain on steroids (Web3)

In 2022, many investors and thought leaders defined Web3 as a culmination of Web2 and an emergence of a brand-new revenue stream in the market. The big question is how different is Web2 from Web3? And what is Web3 after all? In the next few years, large enterprises will look to startups for partnerships in (re) defining core business models or mergers and acquisitions or simply organic growth in this space. What is exciting about this space is that the innovation is not in cryptocurrency, but in blockchain technology.

Blockchain integration being decentralized will undoubtedly work its way and be transformed by Web3 into the way we do business, collaborate, transact, organize and validate. From an investment spectrum, this is one area that is poised to attract more funding both for metaverse-related projects and metaverse mergers and acquisitions deals. I’m excited about the disruption in this space as more and more companies adopt Web3 as a core business strategy which will fundamentally change the way we do business, especially in the B2C space. This will create room for more innovation as businesses look to capitalize on growing consumer needs and competitive pressure.

First Light Games is a London-based mobile game developer and member of Microsoft for Startups Founders Hub, building the next generation of battle royale fighting games on Web3. Their first release, Blast Royale, is currently in open beta.

Sustainability

This is one of my personal favorites! I have been observing this space closely for almost a decade now and it’s great to see phenomenal growth with big checks coming in from investors. I have always said that while commercial startups offer a tangible ROI on investment dollars, sustainability and social impact startups accrue ROI via a ripple effect on our economy, society and community. This space only keeps growing and getting better every year.

Enterprise customers and investors are increasingly looking for green credentials, and we will see more of this in 2023. The recent capital and talent relocation to various climate-related markets brought exciting changes in the stakeholders involved, market dynamics, incentives, and economics. Electric vehicle (EV) startups have massive growth potential, and lithium battery technology is getting better and better making it a mainstream choice for customers. Advanced photovoltaics and microinverters are improving solar efficiency. A nuclear fusion breakthrough was recently announced making room for clean, limitless energy- very exciting!

startups in 2023 - sustainability

In 2023, we’ll see an increased focus—from investors, philanthropists, and government—on buying more time for communities and ecosystems as the impacts of climate change play out on a larger scale and with greater intensity. We will also see a continued push toward making supply chains more transparent, as consumers demand that the products and services, they invest in are energy efficient and backed by more sustainable technology.

Fruggr is a great example of  Microsoft for Startups Founders Hub portfolio company focused on sustainability. They help other companies measure their footprints and dynamically manage performance to deliver continuous improvement.

Improving diversity and inclusion

The buck does not stop with funding diverse and underrepresented founders. We must ensure that these founders have access to networks, tools and mentors who they can look up to and leverage during their journey. This continues to be a challenge with founders who are women, regardless of the stage their company is at. According to a recent study by Pitchbook, companies with at least one woman founder have raised about $38B in funding in 2022, while startups with only women founders have garnered $4.3B. These both represent sharp declines from 2021, although they are still the second-highest annual totals on record. As we continue to talk about bringing more women founders into the fold of entrepreneurship and innovation, I hope we walk the talk of not only funding women-founded startups but providing mentorship and support infrastructure for women and under-represented founders.

As capital allocators hit pause and valuations rebase, companies risk running out of runway. Looking at the glass half full, there is tremendous opportunity for continued innovation across verticals especially supply chain, fintech, healthcare and retail. Startups will continue to be a catalyst for driving change, and the race for top talent in tech will get even more fierce. I’m optimistic that 2023 will bring in a new energy into the innovation spectrum in Silicon Valley and across the globe.

Wishing you all a serene, healthy and an innovative 2023! See you in the field!

To get access to all the technical and business benefits available to members of Microsoft for Startups Founders Hub, sign up today.