It’s the beginning of a new year and decade. Startup trends change fast, some are more durable and some change like the wind. Just a few months ago, the world looked completely different. I started analysing the new trends at the beginning of the year, and now mid-summer, still in the middle of a global pandemic, how can we foresee future tech trends. There is no doubt that this will change the startup investment landscape, not necessarily because the pandemic will last much longer (we just don’t know that right now), but because many will use this opportunity to push new business models and products. There predictions have been compiled thanks to a variety of industry opinions read over time as well as the performance of my clients.
Let’s see what the 2020-2021 investment market may bring us: what technologies will become more consolidated, what new hypes will emerge, and which new trends will start emerging in the next year, all in terms of early-stage investments. We can look at the industry expectations before and after the effects of COVID-19.
Startup investors usually go after big winners, and it is well-known that many invest in a promising sector or company out of Fear of Missing Out (FOMO). Not knowing how a technology will be adopted or how a company will perform in the future, investing early often means taking a chance on what can become big in the future. In the last couple of years, some of the most popular sectors have been: Cleantech, SaaS, Data Analytics, Robotics, AI, Blockchain, 3D Printing, Mobility, Quantum Computing, partly VR/AR. What will the new investment phase of 2020 and beyond hold in store? What is the general opinion on which trends are hot and which ones are not?
One major trend that we see is the increasing interest for B2B startups over B2C. There are certainly exceptions with regards to some new technologies and with developing economies, but in advanced economies more focus in being placed on marketing to enterprises and other businesses. Startups combining scalable technology with a working business model for paying businesses tend to be very interesting for investors as they can provide a higher customer LTV and more stable cash flows. In the last decade we have seen many social networking platforms, P2P marketplaces and sharing economy startups that expanded beyond what was imaginable at the time, but that despite achieving critical mass, still struggled with profitability. Business models aimed at enterprises and small businesses may instead be able to hit revenue and profit targets earlier once a high quality product or service has been established. In the next year or two, we will therefore see more investments going towards B2B startups. This trend is likely to remain valid once the economy startups up again, with the added advantage that we will see new B2B business services emerging.
The popularity of startups and the boom in large and small entrepreneurial activities have also lead to a new trend, which blurs the definition of B2B. The democratisation of tech has allowed many advanced working tools to be available to anyone, with the service scope and subscriptions for many SaaS companies ranging from a single occasional user to the enterprise version. We all use a variety of online tools for work or for our personal activities, or both: from productivity, advertising, video editing and graphics, security, hosting, finance, communication, remote collaboration and much more, we use many of these tools for a variety of reasons. The democratisation of tech will also mean that we will increasingly have tools that allow us to use complex software or apps and adapt it to our needs without any coding know-how. The market here can be vast, as both small entrepreneurs and enterprises can be targeted, which can lead to a variety of revenue models being implemented. Software as a Service companies are are likely to evolve further into productivity, machine learning and integration apps. The after-COVID era will likely lead to an even sharper increase in SaaS for small professionals, as more businesses move online. Additionally, the way we work may change: this trend has been shaping up for a few years: from large companies moving to coworking spaces, to the increase in remote work as well as the combination of work and travel. Remote work is here to stay, and so are services aimed at facilitating this move, but to what extend this will affect the use of offices or coworking spaces is still to be seen.
eHealth has not yet shown all the potential that it has. HealthTech companies have received large amounts of funding and demonstrated a good exit potential in the past few years, while telemedicine has the potential to revolutionise how patients are treated all over the world, pending regulations. A variety of health-related sectors are likely to produce valuable innovations and undergo structural changes, as well as attract large investments from specialised investors: wellness, biotech, medical devices as well as different innovations for the ageing population. One downside of this sector is the low scalability due to different international regulations. In the aftermath of the pandemic, this sector is expected to increase its potential, but it yet unknown whether international regulations will be harmonised to be able to increase these companies’ scalability. Certainly, we can expect changes in the overall health and pharmaceutical industry, as well as increasing consolidation due to the large investments required in the sector.
Logistics and last mile delivery will very likely see increased innovation in both technology and business processes in the near future, with small as well as big steps forward in transportation, although it may take a few more years to see groundbreaking advancements in action. With mobility, some of the innovation and environmental solutions brought forward in the past few years may become mainstream, and a lot of investments will likely flow to mobility companies, in advanced and developing countries, once greater traction among consumers will be established. Whether the pandemic will change the performance of this sector in the long-term is still unknown.
Fintech has already been successful over the past few years and has brought some much needed innovation in the traditional banking sector. More innovation is certainly needed and the industry will likely see more advanced technologies and business models deployed in ePayment, Roboadvisor apps, and new types of financial and lending services might emerge. ePayment solutions are particularly needed in less developed countries, where the quality of banking technology and the penetration of personal bank accounts is low, which is proving to be a barrier to the development of all types of online businesses in those regions: for this reason, investments and ease of regulations will be facilitated where needed. The aftermath of COVID-19 may bring about new innovations in financial transactions taking place through blockchain technology and large market players getting involved in this sector.
IoT has first had a hyped start a few years ago, when it was believed that Internet of Things could be implemented in many portable consumer devices. However, many security and connectivity barriers had not been overcome yet, and the hardware investments were too high for the return expected. Now, however, IoT technology has become much more relevant in the B2B and industrial sector. Advancements in connectivity, with 5G and other technologies expected to be deployed soon, make Internet of Things and Smart City initiatives much easier to integrate. In the industrial space, robotics technology will become more advanced than it is today. IoT security issues still represent a high risk that is not easy to overcome, especially when the technology is implemented in public services: therefore the companies that will be able to produce anti-hack solutions will have a strong advantage. Security will be a central issue over the next 5 years at least. Cybercrime will become more dangerous, international tensions and trade wars will lead to homegrown technology companies being favoured. Monitoring and surveillance technology is expected to increase, and being integrated in Smart City 2.0. New software and hardware monitoring technologies are very likely to surface, although we still don’t know the extent to which they can become mainstream, but we know that governments will become important contractors. Increased connectivity, monitoring and security technology will likely be the next decade’s most important innovations that could change the way we live and interact.
An industry that dramatically changed how we interact over the past few years is social media. While this has had great success, even though the path to profitability for these companies has not been easy, social media preferences are also changing fast. Now Facebook is out among Generation X and Instagram is in, while Snapchat and TikTok have emerged. At the same time, YouTube has become more popular than Netflix, as people increasingly prefer the personal approach of a peer video platform to get news, learn, for interaction and entertainment. Video is increasingly popular across social platforms as a way of earning revenue through ads, or to convert viewers into customers. In the next few years we will likely see video tools becoming more sophisticated, which in the medium-term will also include virtual and augmented reality. Additionally, new ways of sharing and monetising content may emerge. Censorship will increase and lead to new smaller niche social media ventures emerging, but the capital to grow these companies may become scarce in the near future.
The 2000s have been the decade of social media and artificial connection, online dating and the breakdown of our privacy boundaries. This is the seed of wider societal changes, which makes it easier than ever before to meet new people, but which many blame for the worsening of long-term and deeper connections. What will happen in the future, will AI replace our need for friendship and relationships with manufactured relationships, robots and AI-generated friends? Some believe it will go to one extreme, with increasingly artificial connection models, and some that it will go to the other extreme, with companies creating ways to bring back deeper connection to before the social media era, but we may have already reached the point of no return. The business of connection, immediacy and dopamine is uncertain, what we know is that over the next 5 years the landscape will change and new business models will be brought to market. We can only hope that ethical business models will win over the business of dopamine.
Artificial Intelligence and Blockchain have been buzzwords in the last couple of years. AI is already an integrating part of many technologies nowadays, while blockchain has not revolutionised the way we do things like many had promised. AI and blockchain will continue to be technologies applied to many startup products, but the business model will be far more important to investors than the technology used. Advanced AI technology and machine learning applications will continue to be very important for investors and we are likely to see more acquisitions in this space. With Big Data Analytics, improved tools for the collection, usability of data and synthesizing of data, will increasingly be used by businesses and integrated into all types of marketing, research and validation activities. We could predict blockchain technology, bid data analytics and smart city technologies becoming connected and new integrated services emerging.
The business of politics will emerge. The increasing international tensions and polarisation of ideas has already caused many startups to take a political stance. The demand for a-political and neutral services has increased, and so has increased the opposite demand for services that go against perceived injustices and for increased regulation: whether any of these demands will be met is still all to see. Deep fakes could emerge and misinformation could increase, and so the definition of truth will be blurred, with everyone claiming to hold the truth in their hands. This can be called the business of truth: a variety of small solutions to address privacy concerns, payments, social media regulations and monitoring, new online newspapers will emerge on different sides of the spectrum. More limits may be placed on private companies and on acquisitions. However, new businesses may encounter difficulty in fundraising and other competitive obstacles.
Insurtech has been hyped as a sector in the past, but many insurtech startups’ ability to scale has been limited by low penetration among the general population, high barriers to entry and regulation. However, the sector will likely gain more traction in the future as markets change. Factors that can contribute to the sector’s growth, if implemented correctly, are consumer trust, the ability to implement new types of insurance, accessibility and ease of purchase, as well as integration with other partner companies’ products. Lifestyle changes and changes in the regulatory environment may lead to new types of insurance products emerging.
Resource efficiency will be a focus in the next decade, as many are concerned with overpopulation. AgriTech will become even more advanced and much will be invested into R&D for this scope, with a focus on both technology and techniques. Major innovations may not only influence agriculture, but also the entire food chain.
What I wish for the next few years or decade is for new investment types to emerge. New models for investing in early-stage companies without unicorn potential and achieving a sufficient return on investment may be achieved with revenue-based financing. Capital efficiency will hopefully increase and better and more automatised scrutiny of early-stage companies will hopefully aid in increasing the potential of these investments. Additionally, startups investments can increasingly become cross-border, take place online and become faster, easier and more democratic. An active secondary market pre-exits is long overdue.