A survey of 37 chief financial officers from Seattle-based companies indicates that the city’s tech industry remains strong despite the ongoing economic and health crisis.
Three-quarters of respondents expect their businesses to fully recover from the downturn after experiencing temporary setbacks and uncertainty at the beginning of the pandemic. Nearly half say they are now increasing their 2020 spending forecasts when compared with early March, at the outset of the COVID-19 outbreak.
“There was this moment in March where we didn’t know what to expect and we were nervous for the future,” said Hope Cochran, managing director at Seattle-based Madrona Venture Group and a former CFO at King Digital. “But companies have realized that this virtual environment is actually quite effective and productive.”
The survey found that 43% of CFOs now expect higher bookings for Q2 than they anticipated in May, with just 3% seeing a decline from that period.
More than 40% of respondents said their companies are increasing headcount — a stark contrast to the 500-plus tech startups globally that have laid off nearly 70,000 employees since March 11.
The survey was conducted by the Seattle Tech CFOs group, consisting of 100 Seattle-area CFOs that work in tech-oriented businesses.
“I think what we are seeing in this data is that Seattle area tech businesses are both extremely resilient and flexible when it comes to adapting to challenges of any magnitude,” said Chef CFO Evan Fein, co-founder of the group, in a statement. “That these companies, 80 percent of which are privately held, have been able to not only survive, but excel, in these challenging times is a testament to their leadership, their workers and the criticality of the software and services they provide.”
The tech sector is in a unique position compared with other industries, such as hospitality and transportation, that have been hard hit by stay-at-home orders and social distancing requirements during the pandemic.
“Technology has buoyed up this economy in the sense that we’re able to be productive and keep working,” Cochran said.
Shares of Seattle-area giants such as Microsoft and Amazon have spiked during the pandemic as millions of business and consumers rely on their cloud-based services to communicate with each other, buy groceries, play video games, and much more.
Local health tech startups are also seeing increased demand and are rising up the GeekWire 200, our index of top privately-held Pacific Northwest tech companies. Health benefits platform Accolade notched Seattle’s first IPO of 2020 earlier this month.
Some tech companies have extra cash in the bank as venture capitalists are pouring money into Pacific Northwest tech companies at unprecedented levels. The number of deals and dollars invested in the first half of 2020 — $2.3 billion into 135 deals — significantly outpaced the number in 2019 and 2018, according to a GeekWire analysis.
At the same time, the survey raises red flags about internal culture amid the shift to remote work at tech companies. Nearly 40% of the survey respondents said their company’s morale feels worse compared to pre-COVID times. More than half say they won’t reopen physical offices “for a while.”
Some companies are ditching their office space altogether as they weigh the benefits of keeping a physical office against potential cost savings.
Cochran also advised companies to watch KPIs — key performance indicators — and the length of sales cycles, both which can indicate if a business is staying on track or slowing down.
“You have to be very sensitive to what’s happening on your top line so you can adjust very quickly,” Cochran added. “And of course, a strong balance sheet is always important.”
The results of the survey align with the sentiment expressed in February by longtime investor and Code.org CEO Hadi Partovi, who said Seattle might come out ahead of other metro areas if economic activity plunges. His logic was that recessions hurt all companies, but those most impacted are ones with unprofitable business models or shaky balance sheets. Microsoft and Amazon, among others, could emerge from the economic crisis stronger than ever.
“In a recessionary environment, Amazon would be well ahead of its competitors at the tail end of that recession,” said Partovi, a former Microsoft manager and founder of iLike. “At the front end, nobody wants it. But three years later, who survived the best?”
