This is not a “Predictions for 2018” list. In fact, given how crazy and idiosyncratic 2017 has been I am starting to believe more and more in Yogi Berra’s timeless observation: “‘It’s tough to make predictions, especially about the future”. Besides, VCs are generally better known for re-writing history to fit narratives than truly being able to predict the future.
As I spent the last few days thinking back about 2017, these things emerged as most defining for me:
- TRUMP — We are living in the fake-news era. 2017 feels like a blur when I stop to think about politics in our country. It feels like we kept fighting one crisis after another. It was difficult to figure out what news was real and what was fake, especially so because real people with real power decided to spread fake news as much as the Russian bots. At a higher level, I am unsure how this administration thinks an anti-immigrant, anti-science, anti-entrepreneur, and anti-globalization America is good for our economy and global influence. It is certainly not helpful to startups, esp deeptech startups, that have a very diverse employee base, and are addressing global markets + competition.
- HARDWARE — Phew, now that politics is out of the way, lets talk startups. Hardware is hard. And despite knowing this well through decades of hardware innovation cycles, we learnt it again the hard way in 2017. Of course companies like Juicero and Jawbone faltered publicly, but there are many others that also took large investments over the years but called it quits in 2017. And there are others that are walking dead. Lesson: while VC $$ and PR hype can sometimes help a company against competition, it eventually comes back to business fundamentals and entrepreneurial creativity/hustle that determine success. I regularly advise portfolio founders that “[a] startup’s biggest weapon is its ability to get a lot done with very little, and moving fast. Use that weapon. Experiment on product features, marketing, messaging, channels, pricing…a startup can experiment, and be bold, in ways an incumbent simply cannot.”
- SOFTBANK — Much has been written about this so I won’t expand on this except to say that yes, $100–200B is a LOT of money that can imbalance markets. Softbank probably realizes itself that access to money can sometimes become a source of unfair advantage for certain companies over others. But they are not the first ones to try to disrupt VC with bigger funds (actually I am not sure they care to disrupt anybody, but are more interested in reaping financial rewards from a broader interest in tech innovation/infusion across new and traditional industries). We have had NEA type funds raising billions for quite some time now, A16Z was quoted recently by another VC as a precursor fund to SoftBank in SV, some funds I know are now raising $1–2B funds when they have never done so before, several sovereign funds have set up offices in SV, and many larger VC funds now have affiliated growth funds. Money is ever more a commodity in SV, and usually when that happens entrepreneurs are emboldened to dream big and try moonshots. That is not a bad thing, if execution is closely monitored.
- AUTONOMOUS SYTEMS — Autonomy in complex systems is incredibly real and could dramatically change conventional worlds of mobility, commerce, etc. From space imaging and communication systems (e.g. Planet imaging entire earth every day for incredible analytics, to SpaceX space launch systems landing back on earth for re-use), to VTOL aircraft using autonomous flight control systems, drones with sense-and-avoid capabilities to automate aerial imagine (e.g. Hangar) or deliver packages (e.g. Amazon PrimeAir), and cars that likely won’t have steering wheels in a few years (e.g. Zoox, Cruise, Voyage etc), to boats and ships (e.g. Saildrone, Sea Machines) that really shouldn’t crash into other boats and cause harm to life and property.
- AUTOMATION — Automation can sometimes feel like a younger cousin to the hype around autonomous systems in SV, but it is even more pervasive in society, and promises to change how we live our everyday life in meaningful ways. Automation with the help of advanced sensors, real-time computation, and smart actuation is bringing human level intelligence to menial tasks, including assisting work done by humans where AI hasn’t been fully developed yet. I am thinking of home automation companies like NoonHome, Deep Sentinel, Ring, HappiestBaby, and Alexa, or industrial/commercial systems like Ripcord, Veo Robotics, Instrumental, Momentum Machines and others. Artificial Intelligence may have been a buzzword in2017, but we can be sure that just like Saas-ification of software in previous years, everything that can be automated with machine learning and AI will get automated.
- SECURITY — We can put our heads in the sand and assume our personal, physical and cyber security is not at risk, but facts speak otherwise. Our vulnerability to external threats was further exposed in 2017. Our elections have been meddled with, our credit card and social security numbers are at risk, and crazy people of all sorts have access to military style guns because NRA would rather sell you more guns than protect children’s lives. Sophisticated enemies are targeting our infrastructure, our utilities and energy/power networks, our food/milk supply chains, and soft targets like people in malls and subway stations. There are a handful of companies diligently working on addressing such challenges and I am proud of what companies like Evolv and Nozomi Networks have accomplished in this space in 2017. Unfortunately, new year will only mean more threats, and more hard work ahead to continue to protect people and infrastructure.
- MANUFACTURING — 2017 was a banner year for advanced manufacturing technologies. No major news, but those who were watching saw a coming of age for advanced manufacturing startups and their relationship with traditional industries. E.g. DesktopMetal in metal 3D printing, Carbon3D in plastics/polymer 3D printing, Tempo Automation in electronics manufacturing, and others like ProtoLabs, Tulip etc. These new technologies don’t just improve the quality and time cycle of innovation via fast prototyping, but are increasingly cost competitive with large batch manufacturing, enabling manufacturing to potentially move either closer to where innovation happens, or towards the edge where the customer demand is.
- BLOCKCHAIN —If in 2017 you were not a Bitcoin believer on twitter, you were most likely a hater. Few were able to stay away from the fray. Not sure why it is difficult for most people to accept they may not understand the underlying technology or the crazy price volatility of tokens. 2017 started with “I believe in Blockchain but not in Bitcoin” and ended with crypto-millionaires bragging how early they got in on the Bitcoin craze. I wish more technologists explained the space to lay people than the investor/Wall Street types as seems to be happening now. All hype aside, the biggest thing going for crypto is that it continues to some of the smartest minds worldwide, and hopefully some incredible products/companies will get created among the rubble this bubble will leave behind. We have invested in Blockstack and I remain bullish on their mission to power a new, fully decentralized internet.
- DEEPTECH — A notable (non-deeptech) VC commented to me last month that every major VC firm is either already tinkering with deeptech, or is building capabilities to do more deeptech investing in 2018. In his opinion consumer investing currently feels a bit ‘dead’, enterprise/infrastructure feels incremental, and biotech is too far a shore for most to swim to. At Lux we certainly expect more competition in early stage deeptech investing, but that also means more partnership and co-investment opportunities with other funds. In addition, I anticipate investors going earlier (to build ownership) in seed and even pre-seed rounds, and simultaneously investing more dollars later to not get diluted in companies that start to look like outliers. It will be interesting to see how funds do portfolio construction in 2018. All this should be good news for entrepreneurs.
Possibly the most exciting aspect of my job is the time I get to spend with entrepreneurs who are on a mission to make the world a better place — solving real, practical, important problems — and all the while creating tremendous value for themselves, their employees and their shareholders. I was fortunate that 2017 brought a lot of successes, and some failures — each taught me how to become a better investor and a better partner to the entrepreneurs that have chosen to join the Lux family. I have promised myself to learn more as a VC in 2018, and in the process I hope to meet amazing entrepreneurs who will want to partner with me. Best wishes in 2018.
p.s. disclaimer: existing Lux portfolio companies are in bold.