In this Tech Check interview, Kanyi Maqubela of Kindred Ventures discusses the macroeconomic backdrop shaping tech investing, emphasizing the impact of high inflation (8.2%) and rising rates on investor comfort with illiquid assets. He highlights a sharp Q1 funding slowdown—mega rounds down 30% and overall tech funding down 19% QoQ—while noting that cloud software growth remains robust (over 40% growth and 70% margins since November). Maqubela stresses the need for hyper‑selectivity, focusing on high‑quality software that balances growth with profitability. Regarding hardware, he acknowledges supply‑chain pressures from Asian lockdowns but sees value in the services side of hardware businesses. He concludes with a bullish view on sectors such as cybersecurity, fintech, and vertical SaaS, where strong growth supports healthy valuation multiples.
Kanyi, good to have you back. Thanks for helping us start off the hour. So many crosscurrents, right? You got rates and the trajectory of rates. What's going to happen there? There seems to be some softness in tech at the consumer end. Others argue that's going to be made up for by stronger IT spending in the enterprise. How do you process all of this?
First of all, it's good to see you and happy one-year anniversary on Tech Check. Congratulations on a great year. The most important thing to start with, I think, is inflation. So the CPI print today seems like the market has reacted well. Well to because I think it was a 0.5% expectation. It was only 0.3%. But these are huge numbers. We're looking at inflation at the, at the level of 8.2%. And this is across multiple categories. And so we are really moving into an unprecedented era. And all these rate hikes that you were talking about in the previous segment are really going to start to have a big impact on investors' comfort in being tied up in stocks like the illiquids and privates in particular. That said, I want to put some things into context. Q1, the funding slowdown was huge. The mega round was down 30%. Q1 was down 19% from the previous quarter just in tech. And since the top of the market, which was probably November, prices have dropped hugely. But growth is still there and the margins are still there. If you just look at the NASDAQ emerging cloud, growth rates since November are still north of 40% and margins are still north of 70%. And so there still is an opportunity for growth, but you do have to be hyperselective, as you know, about which sectors you're going to be allocating into. And we have a strong view that software, but not just software, but there's high-quality software which mixes growth and profitability, which makes its margin. And then certain sectors where there's actually real particular interest for us.
Where does that leave your interest on hardware, given potential consumer softness and obviously production issues in Asia?
Hardware is interesting. And again, it's one of those things where you have to look one level deeper. And we actually have an investment in a number of hardware companies where we think that the services side of the hardware businesses are really, really interesting and important. But supply chains are going to be challenging. And so when we're thinking about where there's going to be some pressure, the supply chains are continually going to be pressured. And you see what happens in Shanghai, what's happening in China with these lockdowns from COVID And that's actually going to have an impact that's downstream from us still. We haven't yet priced that in. So that's where there's going to be some challenge. But on the positive side of the ledger, Cyber adversary fintech vertical SaaS, you still see an opportunity for trading multiples there that are going to be very healthy on the basis of the growth, which again has been really high as compared to the S&P and even as compared to the greater NASDAQ.
Okay.
So Kanyi, if you're looking at collaboration tools, if you're looking at fintech, maybe if you're looking at multi-cloud management within software, particularly enterprise, where are you most excited? I'm most excited about a couple of areas. FinTech has been amazing. In the last quarter, it was actually a record M&A year— quarter for FinTech. There's just been so much consolidation, but there continues to be a huge amount of real interesting innovation that's happening. The neobank rise has been totally amazing, the intersection with crypto. And so the DeFi-FinTech intersection is proving to be a really important story for this year. Cybersecurity is another one that's really interesting, obviously layering in what's happening in Europe. So there's going to be increased scrutiny plenty of companies that don't have strong cybersecurity. And in terms of vertical SaaS, we're still in a 20-year bull cycle of integrating software into the enterprise. And that continues to be a great sector. You just have to be very selective to optimize for companies who have good margin structure.
