The last couple of year have brought about unprecedented changes in both human behaviour and industry outlook. Two years ago I discussed the tech trends to expect in year 2020 and beyond, so today I’m going to analyse whether those predictions turned out to be true, how those same industries are adapting to this new paradigm we live in, and introduce what new tech trends to expect in the future. At the end I will also explore the standing of traditional businesses, small business and explain how valuations will be affected by how a company fits into a certain trend or system.
Following tech trends for startups and venture capital funds is essential, as the investment industry itself, by placing collective bets on the success of particular trends, creates momentum and demand for specific technologies, particularly when acting in harmony: when the industry works together to push a “winner” it makes those unicorns ‘come to life’ and reflect the value that they have been assigned in the years prior. Tech trends also hint at where big tech is likely to invest in the near future, as the exit is the ultimate goal for startups and VCs. The trend of investors to go for big winners is therefore not ceasing anytime soon, and corporate VCs will also be very active planting the seeds for their next takeovers. For these reasons and others that we will see shortly, we should expect to see massive consolidation across many new technology sector and an integration with (or capturing of) traditional industries over the next decade. This will also make potential strategies and trends more centralised, and therefore I will illustrate a division of businesses by scope, instead of dividing them in the traditional way, by industry. When referring to large funding rounds, in this case this means rounds of over $100 million. Most of the research was conducted on Crunchbase.com: most figures were rounded up and some approximations are present, while some less relevant sectors in terms of interconnected innovation were left out.
GOAL 1: Data Collection, Management And Control
B2B companies still reign king compared to B2C: with an increasing consolidation, and the abundance of VC investments in fast-growing businesses, selling to other businesses is often more profitable, and more sustainable in the long-term as business relationships are more likely to be medium or long-term compared to a sometimes lower engagement or retention of consumers (especially in saturated B2C markets). Something to remember is that many businesses such as specialised platforms, social media and apps that target consumers are actually mainly B2B: their primary customers are advertisers or other companies that benefit from the data gathering that takes place on these platforms. SaaS and Enterprise Software, particularly CRM, data/content management and productivity-focused software, will therefore keep being a good investment bet, as automatisation inside growing organisations and data management becomes ever more important. Almost 200 companies were funded in this sector with amounts in excess of $100m in the past 12 months and almost 750 deals took place in the space. Similarly to SaaS, Cyber Security serving businesses and corporations has also recorded a wealth of funding and exit activity.
The usual B2B/B2C paradigm will break as government(s) will become a target client to many businesses. With the increasing collaboration between corporations and government, there will be a transition for startups and businesses who will start selling their products and services to government agencies, although dealing with bureaucracy could be bumpy: there will be Software and Operating Systems created specifically for this purpose (eGovernment). As centralisation progresses, GovTech in the future may become one of the main buyers of new technologies and services of all kind. In addition to the most obvious, information technology and military technology, there will be FinTech, Media, Big Data and AI. One such example is FiscalNote, that ‘uses artificial intelligence and big data to deliver predictive analytics on government information to determine its impact’ (Source: Crunchbase), and has received $350m in 2022 since its IPO.
The Democratisation of Tech trend, comprising of all kinds online tools for solo entrepreneurs and consumers, will be less profitable than enterprise-focused technology: except for top players serving the high-end of this market, many consumers are spoilt with the free versions of software and day-to-day tools, and therefore willingness to pay is much higher for those requiring these tools for work. However, the sector will continue to produce innovation, also thanks to the wide availability of independent developers and the low cost or launching simple and focused applications: the only obstacle will be limited scalability for niche applications and therefore these businesses are more suitable for angel or alternative investments. Only 3 consumer software companies received finance over $100m in the past year, compared to 200 in the Enterprise Software sector.
However, many of these applications can become VC material by applying the typical B2B business models: make the product available for free to consumers, and serve the interests of corporations by collecting and selling user data. Personal Finance Apps are a good example of this. This is why the real potential of the Democratisation of Technology comes from an integration with BigData solutions, that will only develop further and represent one of the major investment of institutional investors, particularly larger and later stage companies that are able to handle large amounts of data securely, store them and analyse them to be used by corporations (Databases and Analytics). It will be up to each consumer to discern the business model of the companies they buy from and choose to opt for the paid and more private service if available. In fact, we found 44 large financing transactions in the past year, and almost 200 acquisitions, pointing to the fact that this is both an attractive and mature/ large player sector.
We can expect the same trend taking place with HealthTech: Wellness Platforms, TeleHealth or mHealth (mobile health) startups. The traditional healthcare, medical devices, healthcare software, health insurance and pharmaceutical companies have very different business models and expectations from HealthTech startups, even though both would tend to grow together. HealthTech startups, that for the purpose of this article would include IoT wellness wearables, consumer health platforms and apps, have struggled to achieve profitability since the inception of this sector. Once again, the reason is that the B2B sector is much richer, even though these platforms have acquired a good number of users and have gained momentum in the past few years: due to the increasing health concerns, the boom in remote work and the change in perception (whereby people have gained more trust in having healthcare or wellness services delivered online), HealthTech startups are set to grow further. The same trend can be observed here as with consumer software: higher valuations and amounts of funding can be observed when combining mHealth startups with BigData, as with a free or semi-free software/platform, a large amount of data can be gathered that is useful to larger healthcare and insurance providers, or with traditional healthcare facilities or B2B platform or software. I found 50 large rounds of funding and 200 exits in this sector, pointing to a maturing and active market.
The FinTech sector is booming in both B2B and B2C business models. From payment processors, investment platforms, RoboAdvisors, credit platforms, accounting software, payroll software and money transfer platforms, there seems to be never enough innovation in the sector. This is certainly influenced by the growth of eCommerce and the size of already established financial companies that carry out a large number of acquisitions, but it also links back to BigData, which will also be a customer of financial transaction data in the future. Around 300 funding rounds over $100 were recorded in the sector in the last year, with even more acquisitions of FinTech companies. Many FinTech companies will ultimately be absorbed into the Banking industry and become one.
Artificial Intelligence goes hand in hand with BigData: the collection, ordering and synthesizing of data must be followed by practical uses of that data in all sectors: social platforms, eCommerce, robotics, healthcare, science, information management, you name it. This is where a lot of smart money has flown to in the past year, with roughly 150 large funding rounds and 350 acquisitions, it almost seems like humans are about to go on holiday. Jokes aside, corporations are betting hard on the automatisation of most processes and services, and on the deep understanding of the human mind in an attempt to sell more products and influence behaviour, as well as save a few pennies on the repetitive human tasks that could potentially be outsourced to machines. The massive investment in this area also signifies that this isn’t an easy task to achieve. The lockdowns have highlighted the wish of corporations to be less reliant on staff, should something go wrong, and remote working and heavy engagement in online activities also gives artificial intelligence more material to work with by being able to record our online interactions more than ever before.
In these times of uncertainty and increasing feelings of unsafety, the Insurance industry has boomed, particularly in the traditional insurance sector, although InsurTech is progressing and integrating well with traditional insurance companies: this is mostly an industry ruled by established players but that still has many innovators and room to grow, for companies that have a team with the the right experience and know-how. Artificial Intelligence and BigData are complementary sectors to insurance, so many companies in the business work at the intersection of these sectors. Crunchbase shows 70 large funding rounds having taken place in the wider sector and 500 exits. Insurance is actually a mature and traditional sector, but Crunchbase does not currently distinguish between InsurTech and traditional Insurance.
Blockchain is still a fairly young but active sector, accounting for about 80 large financing deals and 60 exits. The technology can be used for a variety of industries: finance, cryptocurrencies and investments, infrastructure, gaming, software, media, art, although it is not perfectly suitable for all industries. It allows for a more reliable recording of data, full transparency or strengthened privacy and anonymity depending on the blockchain technology used. In an economy that seeks constant growth, blockchain provides the possibility to create totally new business models and new way of doing things, such as the tokenisation of assets that enables the democratisation of investments in large assets, which can be accessed by anyone regardless of their familiarity with the technology. However, the large costs of implementation/development and the low trust or understanding of the technology by the general public could dampen the success of these business models, although the hype and hunger of many for new ways of payments and new ways of doing business has so far outweighed the disadvantages. Incoming regulations and the low trust for the end use of the technology can certainly affect its further deployment. Large amounts of money have flown into the space, at times in investments without any real fundamentals, which is therefore not necessarily to be understood as a sign of value or future prospects, but instead in many case it is just a case of speculation. Blockchain, differently from other sectors described above, but also similarly at times to consumer software and social media, can be divided into two different goals: while the majority of companies aim at Data Collection, Management and Control (BigData) and ultimately to creating a business to be integrated into the Smart City concept, some seek to achieve the opposite: Privacy and Decentralisation. There certainly isn’t as much money from institutional investors into these sectors, as a company focusing on privacy cannot be integrated into the BigData Industry and decentralised projects would be understandably averse to seeking or accepting an exit, but it highlights the presence of new emerging industries seeking opposite goals to the mainstream.
GOAL 2: Entertainment And Consumption
Social media businesses keep going strong, as the increase in social isolation in our society and remote working allow social networks to be an outlet where people seek to connect. New social media networks and video platforms have emerged over the past few years in an attempt to offer diversification after the backlash in how major sites like Facebook, Twitter and YouTube utilised data and managed its businesses. New businesses such as Tiktok have emerged to target new generations and new trends. However, reaching the masses without equivalent Venture capital backup for smaller networks and video platforms is more difficult, and therefore a slightly different business model or niche customer targeting is recommended. These businesses earn money through advertisements, they mainly serve the interests of corporations and therefore the diversification that other social media companies attempt can be successful if they target a specific business sector that is underserved by the main networks. Big Data is certainly one of the new revenue streams of social media networks, while at the same time providing entertainment and influencing consumption, so it serves both Goal 1 and Goal 2. In the funding and exit market, this is now certainly a market that is approaching maturity, and so funders are more likely to bet on established players: among recent large funding round, we find few but large rounds, some in excess in of $ 1 billion, destined for Facebook (Meta), Twitter and other established but less known players in the video and entertainment space. The exit market has also been rather active, with almost 200 deals in this space, but many of which that have been focused on social media data analytics and advertising management for social media, thereby confirming that social media is an industry that marries Advertising with BigData by providing Entertainment as a prop. The same applies to Search Engines, that despite having a different business model, also rely of advertisements: in this case, however, breaking the Google monopoly is more challenging and going too niche is counter-productive, unless companies use software and AI to provide private and sector-focused search engines: even more than Social Media, Search Engines lie at the intersection of BigData and Consumption, having the role of both collecting data and directing consumption to the advertising businesses, although being closer to Goal 1.
Media and news companies can be placed at the crossroads of the social networking and entertainment industry. While not being platforms where users and creators post their content, as they produce independent content, they are still heavily reliant on advertisers (but not so much on BigData due to lower amount of data to collect). The sector has been having a very active exit market: it is clearly a more mature sector with still much innovation coming to market. Around 35 large funding rounds and 270 exits can be observed here. Spending more time at home, with the world outlook changing drastically and being more disconnected from the outside world has made us more likely to consume media and online news, so the positive trend in this industry is not a surprise. The industry is varied and composed of news outlets, TV channels and suppliers to enable the creation of quality media. This is a sector that can comprise of solo entrepreneurs, small businesses, startups and corporations alike, while large amounts of capital are only necessary for large productions, but one commonality is the heavy reliance on the advertising industry and the likely consolidation going forward.
The Film and Publishing industry, despite having a different business model and being less obviously reliant on advertisers, still earns advertising revenue and relies on ties with the media and news industry to launch trends and earn profits. Many of the companies that can be found in the sector are actually working to support the film and publishing industry with talent management and other services: here I found 20 large funding deals and around 200 exits.
With the increase of remote working and school lessons taking place online, the Edtech sector, which was previously still at the inception phase, has grown fairly well, with 25 funding rounds over $100 and 125 exits in the past year. With more time at home and in line with our use of social media, Gaming and Virtual Reality/ Augmented Reality have been very active sectors, which are now slowly maturing and consolidating in order to gain access to larger numbers of users: 50 large funding rounds and 310 exits were found here. Another industry where there has been a large-scale consolidation but comparatively fewer large rounds of funding is the Advertising industry, that shows the characteristics of an already mature sector (even if profitable) where consolidation of resources shows more potential than further startup innovation, demonstrated by the around 25 large funding rounds and 580 acquisitions on Crunchbase. At the same time, there have been numerous small rounds of funding, as the cost to enter the market is fairly low: it is clear that there is still much innovation to come in the sector despite the trending consolidation.
The eCommerce sector is easily one of the most active and the one that is most interesting to watch. Lockdowns have led even the most technology-averse people to buying online and have shifted large amounts of value to the sector. The eCommerce sectors is heavily dominated by giants such as Amazon, eBay and Alibaba, and while consolidation is likely to continue, this trend has also created the space for niche marketplaces and eCommerce suppliers to grow quickly. In the future, we will be able to see this sector become more integrated with the FinTech sector, and business models involving renting or the sharing economy may become more popular. In the past year there have been 220 large rounds of funding and 670 acquisitions.
On the flip side, lockdowns have certainly not helped the Travel Industry, and with increasing inflation this trend is likely to continue in the future as well. However, the luxury Travel niche will still have growth opportunities. Despite the global trends, around 25 companies in the sector have received large rounds of funding, while 120 have been acquired. Massive consolidation has taken place in the Events industry, where, after a slowdown of the economy, many companies could be acquired at a lower price. There were 7 large funding in the sectors and 85 exits. The Fashion industry has also performed well with 30 such funding deals and 130 exits.
The Logistics sector has certainly paid the price for lockdowns and the slowdown of the supply chain all over the world, but that has only brought about the drive to innovate. Logistics costs have increased, and that has led startups to scaling up the search for solutions, which have been concentrated in order management software and warehouse robotics: a large amount of funding (75 large rounds) was channeled to these types of companies in the past year. In long-distance logistics we can see a vast number of acquisitions (240), with a consolidation aimed at decreasing costs and eliminating competitions. Similarly, the increase in online purchases rather than local brick-and-mortar stores has concentrated sales in the hands of eCommerce giants such as Amazon and Alibaba, but it has also provided an increased income to logistics companies working with eCommerce giants and given the possibility to new local delivery businesses to sprout, in a sector that typically reports low margins. Further innovation is to be expected in robotics and last-mile delivery, with margins in the sector that are likely to remain low, but with increasing business coming from eCommerce platforms, with BigTech driving innovation trends.
GOAL 3: The 4th Industrial Revolution, Technology Interconnectedness Of Man And Machine
The infrastructure obstacles that was plaguing Internet of Things (IoT) businesses is clearly being addressed now: with the push for Smart Cities from both corporations and governments, IoT companies will have the necessary infrastructure and connectivity to bring their plans to life, even though cybersecurity concerns have not been addressed properly, just as shifting from mechanical to digital technology in our day-to-day life has some disadvantages and many failure points. With the advent of Smart Cities, corporations and institutions are expected to push for innovation in security and energy efficiency, including Smart Home or home monitoring devices, and have already gone ahead with the fast deployment of these technologies. Due to the cost of implementing IoT technologies, both hardware, software or operating systems, the startups operating in this field are fewer, with only about 20 companies receiving funds in excess of $100m, while the acquisition market had instead been rather active, with over 120 acquisitions in the past year, indicating a consolidation in the sector and innovative technologies likely to come from larger companies. A similar number of transactions were recorded with each of the sectors just mentioned above. The IoT sector is the innovative branch of the Telecommunication industry. The Electronics and Consumer Electronics sectors are here to stay, and with the increasing innovations in the sectors and focus on electric cars and smart homes, the private finance market for these companies has been very active, with roughly 45 large funding deals and 260 acquisitions. The shortage of lithium could become an issue with increasing growth in the future though. Central to enabling a shift in industrial processes is Robotics: around 40 large rounds and 100 acquisitions can be observed here. Despite the low-average number of deals in this sectors, it remains a sector with high potential, where finance is concentrated in few but good industry players, due to the very high startup costs. Renewable Energy will continue the strong innovation drive of the past few years, as it is a fundamental element of the 4th Industrial Revolution. In the past year, the sector accounts for 130 large funding rounds and 160 exits. A younger but promising sector is that of Electric Vehicles, where I could find roughly 60 large financing deals and 50 exits.
With the electronics industry developing fast, long-haul logistics becoming slower and more expensive, as well as the strengthening of the environmental movements, many industries are experimenting with new materials or new sources of supplies to serve new emerging trends or counteract the scarcity of local supply. Producing new materials or finding a new way of doing things can certainly spur growth and tap into already saturated markets by launching new trends and therefore reviving consumption. That’s why, for example, the Advanced Materials industry is set to grow, even if still niche: this could include new building materials, materials supply for the energy industry and chemical compounds. Driven by similar trends is the New Food industry, which can include organic or plant-based food and beverages, and accounts for around 40 large funding deals and 130 exits. Farming businesses, both traditional and new technologies (AgriTech), such as vertical farming and hydroponics, also report a similar number of deals. These trends don’t necessarily come from lack of resources, but rather new eating trends and the wish to merge technology with nature in order to increase profits and further industrialise the process of farming. We did not include the traditional food industry for the purpose of this analysis, even though many New Food companies will ultimately be absorbed into the wider Food production and processing industry and become one. Other traditional industries such as Real estate & Construction are also giving birth to many startups and innovations that easily integrate within more established companies and address new living trends of millenials, environmental trends and innovation in construction materials and technology, as well as software needs to better manage processes and marketing within these industries.
The Healthcare industry, comprising of healthcare facilities, health diagnostics, medical devices and pharmaceutical companies have been highly sought out by investors, following the boom in the past couple of years: with 400 large rounds of funding and 1,700 exits, it represents the most successful sector in financial investment terms. Despite being clearly a mature sector, it is still able to produce a wealth of innovation. The Biotech Industry is now becoming mainstream and becoming closely interconnected with the traditional healthcare industry. The world is hungry for new innovations that break down the barriers previously known to man of what is possible in science, and investors are betting heavily on it, with 270 large funding rounds and 430 exits in the past year alone.
The Consolidation Of The Startup Ecosystem
Both systems are viable and both have their own pros and cons. Having multiple financing systems would only add value to the overall economy. What is important for business owners is to decide on their business story when starting or expanding their activity, as the expectations in terms of financing, customer approach and growth expectations, as well as the competitors are very different depending on the chosen path. Valuation methods will also be different, as the type of financing methods, now and in the future, the wish of the owner to pursue an exit and the type of exit, will strongly influence the type of valuation methods used and the reliance on cash-flow discounting methods versus market-based methods (as well as the choice of what type of market the company should be compared to).
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