There aren’t many positives to take out of 2020, but the extraordinary progress made in digital transformation is one silver lining. Rapidly maturing software technologies meant most sectors were already on a digital journey, and Covid-19 has proven an unexpected stress-test for these new solutions. With employees and consumers confined to their homes for much of the year, the world has demanded a more virtual way of doing things, putting pressure on corporates and CEOs to fast-forward the digital agenda.
Where there might have been resistance before, businesses and consumers have had to adapt, and the lessons learned bode well for the future. As well as the obvious shifts, such as the exodus from physical offices and high streets, the case for digitization and automation has been strengthened in factories, warehouses, supply chains, and other back-office processes. And while vaccines give hope that we’ll return to some form of normality in the next few months, many of these innovative new business practices look set to remain.
In what has been at many times a dark and depressing year, science and technology have provided glimmers of inspiration and hope that we can combat Covid-related challenges and continue to innovate and grow. Meanwhile, entrepreneurship has reinforced its position as the last dynamic space in an otherwise stale economy.
With that in mind, here are my thoughts on the biggest startup and VC trends that will come to the fore in 2021.
IPOs: First Manhattan, then Berlin, London, Paris
Although Europe has led the US in terms of the number of IPOs over the last five years, it is dwarfed in terms of the absolute capital raised. While EU tech IPOs raised approximately $19bn in 2020, the equivalent number in the US was several hundred billion dollars, through the high-profile listings of Lemonade, Snowflake, Airbnb, Unity, DoorDash, and many more. However, change could be around the corner with large IPOs on the horizon from companies such as Transferwise, Deliveroo, and Darktrace, which are being wooed to list in Europe, rather than jumping ship to the US exchanges like Unity and Spotify. If they do, it will be great news for the European ecosystem, stimulating further backing of the venture sector here by pension funds, insurance companies, and other institutional investors.
GREEN TRAIN GATHERS STEAM
When it comes to column inches, ESG investing, or impact investing as it’s sometimes known, is up there as one of the top trends of 2020, with investors pouring $45.6 billion into sustainable investments in the first quarter of the year, compared to outflows of $384.7 billion for the overall fund universe. The VC space has experienced a similar ESG fever, with funds being forced to think about, not only the downsides of investing in companies that go against ESG principles but also the huge positives of investing in those businesses that are solving the biggest macro issues we face as a planet - not least climate change.
As a result, ClimateTech 2.0 looks set to be one of the standout successes of 2021, thanks to new business models enabled by IoT, better data, and the acceptance that an energy-only approach won’t achieve the 2050 emissions targets. This is a shift from the previous ClimateTech cycle, which was focused solely on energy, to how climate considerations can be incorporated into a wider range of sectors, such as fintech, agritech, transport, energy, manufacturing, and construction. For example, the opportunity to integrate carbon offsetting tools into consumer-facing applications.
THE PRODUCTIVITY AND COLLABORATION “WAR”
According to Interbrand, four out of the top five most valuable brands in the world are platforms: Apple, Amazon, Microsoft, and Google. If you add Salesforce, these are arguably the companies that will set the tech agenda for years to come. As Tien Tzuo, CEO of Zuora wrote recently: “No matter what industry you are in, it’s not enough to just make and sell a great product anymore. You need to create a community and a marketplace that allows people to interact, transact, and ideally learn from one another. That’s the power of platforms.”
This, combined with the rapid move to remote or hybrid working, has increased the demand for workplace apps, and in particular collaboration and productivity tools, as underlined by Salesforce’s recent acquisition of Slack, which has become the default collaboration platform for young, innovative companies. The question remains whether the company can maintain its current rate of innovation as part of Salesforce, and we will no doubt see a new wave of innovative players emerge in this space in the coming 12 months. Glue, a new app from the productivity startup Memory, is one to watch, as is Amie, which raised pre-seed funding last year.
GLOBAL SUPPLY CHAINS IN DISARRAY
Few areas have been put under as much strain in 2020 as supply chains, with rapid change forcing companies to adapt their plans on a week-by-week, or even day-by-day basis. However, the situation only accelerated a transformation journey that was well underway, with companies looking to reduce the disruption risks posed by geopolitical uncertainty and economic populism, while benefitting from wage and cost convergence. For startups and VCs, this represents an opportunity.
While supply chain tools do exist, they have been relatively slow to maximize the latest emerging technologies ranging from artificial intelligence (AI) to data analytics and the internet of things (IoT). In 2021, we will see a number of supply chain start-ups begin to make their mark, with solutions that streamline ordering, reduce waste, highlight areas of risk, and safeguard relationships between parties. Keep an eye out for Contingent, which uses AI to increase compliance and reduce fraud, and Krizo, which is building an end-to-end solution for resilience, capable of handling everything from crisis management, business continuity, and mass communication.
B2B CROSS-BORDER PAYMENTS, POWERED BY CRYPTO
It is a continual surprise to non-specialists to find out just how poorly connected the global financial system is. Banks haven’t launched new products in decades and corporates are particularly underserved. Even for the tech giants, payments in and out of emerging markets are extremely tough. Think of Google trying to collect advertising fees from SMEs in South Africa, or Amazon MTurk paying their contractors in South East Asia. Collections are made difficult by central bank currency controls and compliance requirements, whilst payments out are often made with in-store credit as opposed to cold hard currency. Interestingly, shadow economies in Amazon store credit can be found across these developing markets so that people can buy food!
The crypto economy is a fundamentally new financial system that has none of these constraints. It is fast, cheap and global, and could be a significant enabler of such transfers, assisting both consumers and corporates. And with crypto getting more mainstream approval during 2020 from organizations such as PayPal and Square, as well as corporates, more innovative use-cases will emerge in 2021, particularly in the payments space, in some cases working in tandem with the banks. One example to look out for is Wiredirect, which uses cryptocurrency to facilitate cross-border payments.
DATA ETHICS DRIVING COMPETITIVE ADVANTAGE
With internet penetration and time spent online increasing, protecting privacy and data is becoming even more critical. GDPR laid out a whole set of new rules in 2018, however, consumer expectations are on the rise, with demands that companies go above and beyond to safeguard their data, notify them how it is being used and what they are offering in return.
Google has already pre-empted the ePrivacy legislation, by saying that it will stop the use of third-party cookies in Chrome before 2022. In 2020, we also had the case of Wheely, the luxury ride-hailing company, which fought the Russian Government and won over safeguarding its customers’ data. Throughout 2021, we will see more organizations following suit, by integrating data ethics into their brand, to foster trust, bring them closer to the consumer and develop a competitive advantage. The mentality has shifted from viewing data ethics as a tick-box exercise to one of doing what is right for the consumer.
However, that’s not to say governments don’t have a role in regulating tech, as has been demonstrated by cases against Google and Facebook. We will no doubt see more like this going forward, leading to potentially a new social contract between government and the private sector.
THE ‘UBERIZATION’ OF BANKING
Fintech players have been challenging the big incumbent banks for several years, but 2021 could be a watershed, due to an increasing number of ‘non-banks’ entering the fray. Leading the way is Uber, which is reigniting its focus on finance, with the launch of Uber Cash. However, we believe that it won’t be alone, and so-called Banking-as-a-Service (BaaS) will be one of the most important trends of the year, as firms with innovative technology infrastructure increasingly target non-banks, in the shape of platform businesses such as Google, retailers such as Amazon, or telecoms companies. Not only that, but BaaS providers also have a market amongst other fintechs and incumbent banks, helping them to innovate their offering without the time and investment of developing their own platforms. Hence BaaS providers, such as solarisBank and Bankable, are a good bet for investors.
BUNDLING AND UNBUNDLING THE BACK OFFICE
As in financial services, many sectors have experienced cycles of bundling and unbundling of related products and services over the years, driven by new technologies and innovative startups. A good example is the media industry, which was unbundled in the 2000s, as user-generated content platforms like YouTube and new music formats like MP3 came to the fore, but which is now being bundled again in media behemoths such as Netflix and Spotify. We will see these cycles of bundling and unbundling become even faster, more dynamic, and more unpredictable in 2021 and beyond.
In more traditional sectors such as financial services, incumbents will rely on bundling through APIs, adding best-in-class products, tech stack, and features as they aim to catch up with the digital era. In particular, we will also see more bundling of disparate back-office processes, enabling businesses to reduce costs, provide a more seamless customer experience, and reduce the operational risk often associated with manual and antiquated systems. For example, businesses can bundle innovative credit assessment solutions into their offering using companies like Duedil, or seamlessly integrate a way to offer payment terms to their B2B customers, through solutions such as Hokodo.
THE NEED FOR SPEED
5G has been on the drawing board for some time, but it is now becoming a reality, with the roll-out of 5G networks underway around the world; a report from Ericsson predicted it will cover about 60% of the global population by 2026. The technology doesn’t just offer faster connection speeds and more capacity, but also ultra-low latency, which is transformative for IoT and edge computing, as well as anything which requires a real-time, instant connection, such as autonomous cars, robotic surgeons, as well as machine-to-machine communications, for example in drone fleets. It will also have a huge impact on AR and VR experiences in gaming, media, and entertainment and contribute towards ever more seamless remote working. Watch this space for numerous use-cases coming to light next year.
Finally, despite much discussion of the ‘new normal’, certain sectors will revert to the ‘old normal’ faster than one might expect, particularly those areas where virtual experiences are no match for the real thing. For example, online education, virtual events, and PC-based health and fitness classes, which have received an abundance of investor dollars during the pandemic. Consequently, some investors will lose money on investments that ultimately don’t have a big enough market to survive once lockdown restrictions are lifted for good.
So, there you have them - my top bets for 2021. While the general news may be bleak, there is still plenty to be positive about, and there has never been a better time to start a company. We’ve got the technology, the need for change, and the problems to solve. Experience tells us that periods of crisis and recession can be times of intense innovation and entrepreneurship, with unemployment driving individuals to set up on their own, with nothing to lose. Furthermore, the venture sector is thriving, with plenty of investors out there looking to contribute towards solving real problems, through actively working with entrepreneurs to build the next generation of world-class companies.
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