With 2020 officially at a close, many are reflecting on the year that was and what the future holds. While none of us were expecting the world to be completely turned on its head at the hands of a global pandemic, I’ve been continuously impressed and inspired by the immense demonstration of strength, resilience and grit throughout the startup community and beyond.
Reflecting on the last year at Cathay Innovation, I’m humbled by the achievements we’ve seen from our portfolio companies, our team and our wider network. We’ve seen the entire Cathay ecosystem mobilize to provide support from donations to medical efforts to guidance for emerging businesses weathering the storm. As a firm, we’ve made big strides towards our goal of unifying the investment landscape across continents — with investors, entrepreneurs and leading Fortune 500 companies — to invest in and support startups positively impacting the world. A mission that has only grown in significance and importance to us in the last year.
A few highlights include the recent appointment of former head of Michelin Ventures Matthieu van der Elst as our first Chief Impact Officer, closing Cathay Innovation Fund II, now at 650M € ($790M) to invest in startups globally at the center of digital revolution, along with the Cathay Smart Energy Fund to fight climate change and support innovative carbon neutral solutions in China. 2020 brought renewed support from investors such as Bpifrance, Groupe ADP, Groupe SEB, Michelin, Valeo, Total, Accor, BioMerieux, JCDecaux Holding, Kering, Pernod Ricard, Unilever and L’Oreal as well as new partners including globally leading biopharmaceutical company Sanofi.
We’ve seen incredible momentum within our portfolio from all corners of the world including: Chime in the US (becoming the regions most valuable consumer fintech valued at $14.5B) to China’s Pinduoduo (firmly establishing itself as one of the top e-commerce players and doubling down on agriculture) to Europe’s Glovo (taking their leading on-demand deliver anything app to the next level with dark stores). We’ve had an active year investing in innovation everywhere from North America (Sidecar Health, ZenBusiness, Skan.ai), Europe (Savana, Descartes Underwriting, Medwing), to China (Coherent, Fiture), South Eeast Asia (Igloo, FinAccel) and Africa (Aerobotics, Migo).
Last year, some of the most prominent trends I anticipated for 2020 were focused on the globalization of the venture capital platform, “tech for good”, along with fintech going mainstream. While the pandemic certainly disrupted most aspects of our lives, it also accelerated many of these trends. Here’s what I think is in store for 2021 and beyond:
Impact Investing: VC Industry to see the Convergence of ESG & Returns as Impact Tech Scales
Until now, there was a clear separation between “investing” and “impact investing” (or ESG related practices) due to the misconception of sacrificing returns. Moving forward, the VC industry will see a shakeup as the two merge with “tech for good” scaling and others struggling to create long-standing companies. All stakeholders — including LPs to customers — will push for a risk-return-impact framework that more VCs will adopt as the new generation of entrepreneurs rises.
Additionally, we’ll see the gap between the COVID-19 impact on the tech world and that on society and people begin to dissipate. While the pandemic initially accelerated digital-first businesses and the adoption of technologies such as AI, true recovery won’t be possible in a world with rising unemployment and other parts of the economy collapsing. The technology industry will come to this realization and double down efforts on social outcomes which will fuel the ecosystem approach — collaborative cross-industry relationships or alliances that work together towards our shared goal with tech being the main driver of change.
Venture Capital 2021: A Sharp Division in VC Emerges while Global GPs Set Eyes on Europe
COVID-19 didn’t have as large of an immediate impact on the venture capital industry from the number of deals or valuations as anticipated. However, in the post-COVID world, there will be a sharper division of the VC ecosystem between generalist large technology financing platforms and smaller boutique and specialized firms. It will become harder to be a generalist VC firm and remain a small fund. The larger firms will also look to expand activities into new areas such as crypto, debt or fund of funds.
International LPs and GPs, particularly those in the US, will increase investment and focus on Europe as there are now more companies who are proving that they can not only become unicorns but decacorns. However, while the venture capital industry is becoming more global — with the concept of innovation anywhere becoming widely accepted, tech companies on the other hand will double down on the core part of their businesses in one single geography as a symptom of local economic recovery efforts post COVID-19.
Innovation in Asia: China to Reach Next Phase of Digital Revolution as SEA Leads Emerging Markets
China has quickly emerged as a powerful tech-center, particularly in areas such as e-commerce and AI, thanks to having the largest (and most digital-savvy) population in the world producing a treasure trove of data leveraged by an enormous pool of engineering talent. Add to this its leadership position in IoT as the “factory of the world”, the rise of 5g and immense government support — and we’ll see China become one of the first tech leaders to realize the next-phase of digital revolution with AI-driven software that will permeate across verticals and interact seamlessly with the physical world, everywhere.
China will probably also be the first country in the world where people will have their digital avatar, an AI powered double of yourself making your environment respond to you in a targeted way both in web and real life. While the government will keep access to data, we also see the start of a GDPR like policy making that personal data will be really protected from private sector potential wild use.
Additionally, we’ll see more global funds increase their investment activity and set up shop in Southeast Asia as the region produces more innovation out of companies raising big money. We’ll see the beginning of the technological leapfrog — similar to the Chinese tech playbook we have seen in action 15 for about already 15 years — as mobile penetration increases, new business models and solutions scale and large companies emerge that will surpass incumbents in developed regions. SEA continues to be the frontrunner in emerging markets, but closely following in its footsteps are Latin America and Africa — all favoring impact tech by market nature.
Global Fintech Revolution 2021: Embedded Finance & The Emerging Market Opportunity
Within the last five years, fintech has transformed the global financial landscape from the rise of neobanks to data driven services for the SMEs and new payment technologies and more. We’ve now reached a turning point in the global fintech revolution that will see mass acceleration starting with the next phase of distribution anywhere from anyone with embedded finance. In 2021, we’ll see a major uptick in companies embedding financial services through APIs from credit and lending to insurance, banking and so on to better leverage data and increase customer touchpoints, enabling the entire economy — from consumers to the enterprise to SMBs — to be financed differently. The future is embedded, and the current status quo of financing the economy through banks will start being displaced at scale by data-driven finance from any kind of adjacent service.
Emerging markets, such as Southeast Asia, Latin America and Africa, represents one of the largest opportunities for fintech players in the coming years driven by the financial inclusion movement to reach the unbanked and underserved. In 2021, we’ll see new kinds of infrastructure to facilitate new services and payments from cash touch points to delivery unique to each region. From digital banking to credit, lending, insurance and more — fintechs will give first time access to the populations previously left behind, boost the entire economy and leapfrog the developed world with technology-enabled services that are better targeted and more efficient. In this next phase of mass disruption, we must now take care to ensure that the financial landscape remains inclusive and that data doesn’t perpetuate bias, with regulators favoring and guiding change.
Parting Thoughts: Through Difficult Times, Incredible Innovation is Born
From individuals to startups and SMBs to corporations — the last year challenged society as a whole in the face of a health and economic crisis like we’ve never seen. Yet, it’s during the most difficult times that you often see the world come together and innovate like never before.
Many may (understandably) want to put the last year behind them, but the amount of ingenuity, collaboration and resourcefulness in 2020 is nothing short of incredible. Consider the massive accomplishment of developing a vaccine for COVID-19 in under a year, the outpouring of support (both financially and emotionally) to medical professionals around the world, or even startups pivoting or adjusting services to better help people and their customers through hard times.
If the last year is any indicator to what can be achieved, I remain highly optimistic about the innovation we’ll see unfold along with the meaningful — and impactful — change we’ll ignite around the world in 2021.