Investing in software engineers as an asset class
In August 2011, Marc Andreessen coined the phrase "Software is eating the world" and since then we've witnessed software companies having a feast. In a recent interview, Marc explained his intuition was based on the 100-year old idea of ephemeralization or the fact that technological innovation results in the ability to do more with less (relentlessly marching towards being able to do anything, with nothing). Many hardware solutions (think your old radio, alarm clock, journal, etc.) have been replaced with software solutions (mostly apps on your phone), and (almost) everywhere you look there's software in the process of being built to make things more efficient, easier, better.
For the last 10 years, we've seen this trend accelerate in front of our eyes. A few data points:
In 2013, venture capitalist Aileen Lee came up with the term Unicorn after analyzing 60,000 tech startups that had received funding between 2003 and 2013 and realizing that only 39 had reached a valuation higher than $1B. As of August 2021, the number of unicorns has grown to more than 700. And we believe this trend is set to continue for the foreseeable future.
4 years later, in 2017, startups raised a total of $100B during the first half of the year. Today, VCs have deployed $288B during H1 2021. Since 2011, there have been more than 700 sub-$200M funds created.
Using YCombinator as a proxy, it is interesting to see the software entrepreneurship phenomenon accelerate and expand globally. In summer 2005, in their first batch, they had 10 startups, all US-based. The latest 2021 Winter batch graduated 319 companies (50% of them founded outside the US), with 41 countries represented.
At Remotely we are building a company with the developer at the center, where we hope to satisfy their needs and wants. We're starting with managing a successful professional career, but we have our eyes set on other very important aspects of the developer's life: financial services and professional education, to name a few. As you know, we're strong believers that great talent can be found anywhere but opportunities, up until now at least, have been accessible to the few that lived in specific tech hubs.
In a nutshell, we're building Remotely Works because we feel you can't go wrong investing in the software engineer as an asset class.
There are two main reasons that explain why most people did not employ software developers abroad:
Given the choice, companies prefer to hire someone locally: no cultural barriers, trust in quality badges (degrees from known universities, experience in other known local companies), reasonable salaries, easier to build a loyalty bond in person.
Remote work was not believed to work. While some tried, it was the generally accepted principle (from 3000 years of economic history) that where you live and where you work have to be connected.
The truth is that both reasons have deteriorated (the first somewhat gradually, the second all of a sudden).
First, we are living an ever-worsening rise in the demand for software engineers. The Bureau of Labor Statistics indicates that by 2026 the shortage of engineers in the US will exceed 1.2M. The obvious short term side effects of this growing lack of supply have been:
Developers are becoming prohibitively expensive: the median computer programmer salary in the US is more than $100K a year, which in some states is two times larger than the average regional pay.
Record turnover of talent: staff turnover in the US IT industry ranks at 13.2%, which is the highest attrition index among all industries. High turnover is costly—employers are forced to pay 50–250% of the salary for replacement.
Mismatch between qualifications in demand and developer skill-set: rapidly evolving technology is also creating a new challenge - the way developers acquire skills can't keep up.
Second, the pandemic has served as a system shock that hand-forced the entire industry to go remote-first:
Remote work is not perfect, but it has worked pretty well for the software industry: product demand has trended up, and no major disruption has come from having empty offices.
Knowledge workers have experienced a new reality is possible: you can fulfill your professional career ambitions almost from anywhere that has a good internet connection. This freedom has created consumer surplus (more savings, better quality of life) that is currently being captured by the worker in its entirety.
What this means for companies is that they can alleviate the problems of their talent shortage by tapping into talent pools that were off-limits or ignored. The pandemic, for the most part, proved that remote work was NOT an absolute no-go and could become a permanent solution.
Given this new reality is possible, these are the few things we expect to happen in the next years/decades:
Demand for software developers will continue to grow as every company becomes a software company.
Remote work is not a temporary solution: while talent will go back to the office, the genie is out of the box. Companies will face incredible pressure to accommodate the demands of their employees that request to stay remote. If they simply refuse, we foresee competitors arise that provide that flexibility and poach talent.
Average global salaries for software engineers will continue to rise: the global supply of new software developers into the labor market doesn't satisfy the global demand. But there is going to be great deflationary pressure on salaries in the main tech hubs (SF, Silicon Valley, NYC, Boston). Globally, software developers will increase their salaries rapidly, as US-based demand shifts outside the main tech hubs.
US-secondary first, then Canada, then anywhere: we've seen this movie before. It happened to Tel Aviv, it happened to NYC. It will stream again in Austin and Miami. Then it will premiere Canada. Then everywhere else. To those complaining about how hard it is to recruit in your home country, brace yourself. It's about to get worse.
Talent will leave services companies to join software product companies: agencies, dev shops, staff augmentation companies made sense in a world where software was a secondary priority. But as software becomes an increasingly strategic part of every company, software engineering teams will tend to be assembled in-house.
Remote work best practices will rise: new ways of managing people, getting products created and delivered, new ways of balancing work and life. Many will be enabled by new software solutions yet to be invented.
Company culture will go full-on melting pot: As remote goes global, US-based companies will have to blend culturally and tune down the US-centrism that has dominated startup culture for the last 3 decades: how companies communicate, how they recruit, what managers succeed will change.
Remotely will be a one-stop-shop for optimizing the life of a software developer: accelerate your career, improve on your skills, access financial services catered to you. You heard it here first.