Tech/VC look back at 2018. Looking forward to 2019.
I did not want to do an end of year post, but here I am…there are no remarkable insights here, but rattling off some thoughts to freely share, and get feedback.
2018 — Looking back:
- What company will rule tech sector for the next few years? In the last 20 years we have lived through eras when companies defining them seemed invincible, and capable of entering any space and winning, and dominating broadly…until they were not. We have moved from a Microsoft-era to Google-era to Facebook-era, to now Amazon-era. In each of these cases, the companies defining them had cash-cow business units, enabling them to invest in new business lines, conduct major M&A, and kill competition (fairly + unfairly). In 2018 Amazon felt invincible, from its cloud offering on which the entire tech startup industry is built, to its domination in e-commerce, logistics, home automation, and now food/groceries via its acquisition of Whole Foods. But what will the future bring? Is Uber-era around the block with its massive presence globally in mobility, logistics, food delivery etc?
- We heard a lot about China tech in 2018. Perhaps only shadowed by how much we heard about Russia (for very different reasons though). But people in tech industry have extremely varied views on China. One camp believes China is racing ahead of the rest of the world in technical prowess, innovation, and practical execution—while the other thinks the impressive display of progress is a massive house of cards being propped up by an authoritarian regime that is showing signs of cracks already. Maybe its a little bit of both…it feels like industries that require long term planning, strategic direction, research, and regulatory approvals are going to thrive under an authoritarian regime, esp one that is dedicated to moving forward at a fast pace. E.g. artificial intelligence, genetic engineering, infrastructure development etc. But cracks could still appear as China deals with a growing middle class demanding more rights, more freedom, and generally more transparency, collaboration, and open-source developments. US military has now also clearly identified China as a major threat, and it will be interesting to see how that affects global trade, technical cooperation, and human resource/funds transfer. Thanks to trade wars, SV is quickly becoming expert at CFIUS.
- SoftBank name was whispered in almost every major tech-related conversation at the beginning of 2018. No fast-growing company felt untouched by the >$100B AUM juggernaut that was willing to flex its muscles in a big way. And there were some other funds who also entered the scene in similar, if somewhat smaller, ways. These macro-funds were welcomed as king-makers early in 2018, but I am not sure tech industry is closing 2018 books with the same warm feeling for them. Turned out the heavy-handed tactics deployed during investment process and negotiations, including some reports about funds walking away at the last step and/or changing terms, have left people less interested in engaging with them. At the same time, every major SV fund has also raised their own version of growth funds — partly to plough more money behind their winners, but also to counter aggressive moves by others, and to have credible alternatives available when big guns try to bully their portfolio into financings they may not want/like.
- Fake news dominated the news cycle in 2018, largely due to the political circus in Washington D.C., but I believe tech industry was caught flat-footed dealing with this massive issue that is not going away any time soon. While companies like Facebook or Google have some of the most advanced efforts underway to deal with this crisis of (dis)information, I do not believe they are even remotely capable as yet of adequately addressing this. Domestic and foreign organizations are actively launching sophisticated cyber-warfare on our civil discourse, societal trust, and political freedoms…this is no farmville play crap— but unfortunately major tech companies are either still busy trying to deflect the attention, or looking for scapegoats to take the blame, and protect their own. Pretty amazing that while small companies and individuals are being thrown under the bus, not a single major tech company executive has been held accountable despite the steady stream of scandals. I am of the view that small groups of individuals, companies, and non-profits are doing the heavy-lifting of building actual tools to fight this menace, while large tech companies AND activist media are busy waging nonsensical PR wars against each other.
- Not sure if it was the Travis Kalanick saga, or the #metoo scandals that surfaced at several companies, or other lawsuits that hit Boards of SV startups…but I certainly felt that the pendulum swung a bit away from ‘founder friendly at all costs” to more responsible fiscal responsibility and active Board participation among VC Board members. I felt a minority when I talked about taking a harder stance on certain issues on startup Boards at the beginning of 2018, but that changed towards the end of the year when more Board members became more active, and played their role in holding the Board and management more accountable. As a lead Board member who also wants to be founder-friendly, but also company and shareholder-friendly, I am grateful to see a more sober and responsible attitude from other Board members.
- Some spaces that seemed super relevant to me in 2018: (a) Physical security — thanks to NRA guns are abundantly available to any lunatic that decides to hurt innocent civilians. We are unsafe in our schools, public buildings, theme parks, concert halls, and stadiums. Until society figures out a way to control guns, we will need tech to conduct risk-based security checks, alert us when danger lurks, and enable us all to be more alert at all times. (b) IoT — internet might try to make memes of this space, but it is growing fast and impacting our lives in many many ways. From success stories of the past like NEST and Ring, to rapid adoption of voice devices in our homes, to industrial IoT companies like Samsara, the growth in IoT proliferation is real, and next-layer software/services will have a large installed infrastructure to utilize. (c) Additive Manufacturing 2.0 fully arrived in 2018. Companies like DesktopMetal, FormLabs, Carbon etc are rapidly growing revenues, building incredible products, and changing how we build things at scale using 3D printing. This industry is developing at the nexus of hardware/software/materials science/generative modeling/logistics and poised for growth. (d) 2018 was an interesting year for robots. Some well-known companies like Rethink Robotics and Jibo failed to survive, but others like Veo Robotics, Six River Robotics, Covariant, Right-hand and others found big commercial customers, and raised financings to grow. I believe our near-term future includes Machine+People working together, one not taking jobs away from the other, but automating tasks and allowing for more work to be done locally and in real-time. (e) Autonomous cars — one only has to drive around in SV to realize how real this feels, and the issue really is not if but when will they truly enter our economy in a big way. Waymo has hundreds of vehicles criss-crossing local streets and highways, while Zoox recently received permission to carry passengers as they test their cars in public. Automotive OEMs are starting to get religion, and are gearing up for an autonomous future by not only acquiring technology, but increasingly also realizing that in certain areas (like software algorithms, simulation, sensor fusion etc) they might need to partner with SV companies that simply know how to do this better than them.
- I won’t comment much on the following as they seem to be well discussed in public: Tesla (I love the product, and the entrepreneurial spirit behind the company, and Elon will be remembered as an incredible entrepreneur regardless of controversies that piss off Wall Street); Scooters (customers love them but they are a menace to everyone else on the streets and the sidewalks); crypto (space in a deep winter as people still searching for a single app that finds scale despite all the hype).
2019 — Looking forward:
- IPOs are coming to SV — Companies like Uber, Lyft, Pinterest, Slack, AirBnB etc might be going public in 2019. This will be huge for SV. Not only will billions of dollars transfer to SV from the rest of the country (and the world) making thousands of people very rich, but it will also unlock the talent that is currently tied up inside some of these big, still-private companies. Once wealthy, many of them will choose to leave their current positions and either start or fund the next generation of startups. I believe many of them will want to build companies that solve real world problems, tackle hard technical challenges, improve people’s lives, and/or make entrepreneurs’ childhood fantasies/science fiction become reality. This will be exciting!
- There is something very interesting happening in our homes. We are not just rebuilding and re-decorating our homes…we are changing what happens at our home, and are bringing services we had previously outsourced back inside our homes. For e.g. Khan Academy is bringing education back to our homes from schools; companies are moving towards distributed work forces, with many workers working from home; shopping malls are going away and goods, food, groceries are being delivered inside our homes by the likes of Amazon, Instacart, Doordash etc; Netflix and chill at home is already a thing that replaces the traditional cinema and dinner date program; and companies like Peloton and Tonal are bringing the gym into our homes. With all this and more, it will be interesting to see how technology will be used to adopt and prepare our homes for these activities. We are already seeing interesting trends in use of smart kitchen appliances, connected lights, home security cameras, locks/access devices, and inR&D for last mile robots + delivery drones etc. Our homes will know a lot more about us, our lives, our health, and our habits in the future than they did in the past. Who will get access to this treasure trove of information, and how?
- 2018 showed glimpses of how fragile and vulnerable our industrial infrastructure is in the face of sophisticated cyber attacks. This is likely to become a full-blown crisis in 2019 for the US as state and non-state actors realize how easy it is to cause widespread mayhem and damage. We are woefully unprepared, but the industrial cyber security industry is trying to grow up fast, and preparing to be ready to face the challenges that are already affecting critical infrastructure around the world. When our IT infrastructure is hacked, people’s privacy is invaded and personal information gets misused for financial gains. When our OT (operational technology) infrastructure is hacked, things blow up and people could lose lives.
- Military-industrial complex was a big thing in the past. It was big. Huge. Military investments led to the creation of tech centers like Boston and Silicon Valley. Military is once again looking for heavy technical assistance, and this time its for a military-technology complex, but unfortunately the tech sector is largely not showing interest. This will be interesting to watch. Will that money get diverted to new geographies that show more interest (e.g. Army is setting up its new ‘Futures Command’ in Austin)? Or will some tech startups choose to work with military (under ethical guidelines acceptable to tech workers), and build big companies that compete with the major DoD contractors in size, influence, and financial success?
- We started hearing in 2018 that major tech companies were setting up offices outside SV. E.g. Amazon’s search for a second headquarter, Apple in Austin, etc. We also heard some VCs moving out of SV to other regions, such as Peter Thiel to LA, Mithrill Capital to Austin, some others to Seattle, and others elsewhere. Is this indicative of a bigger trend that would result in more high quality startup teams emerging from new regions outside SV, and staying there to build their companies? While SV is not about to lose any of its influence any time soon, I am obviously invested heavily (via Lux) in Boston, NYC, Austin, LA, Utah, Seattle etc, and would very much welcome strong talent that knows how to scale companies becoming available in these geographies. There is a lot more work to do though, and the talent sucking sound that we hear when large tech companies show up in other geographies is very real.
- We saw early signs of Fortune 500 companies buying some tech startups in 2018, e.g. GE, Ford, Goldman Sachs etc. At a dinner recently, we discussed how Fortune 500 growth is really driven by ~8–10 companies that are mostly tech companies. Most others are using cash generated by their businesses (and in some cases cases taking loans) to buy back shares to prop up share prices. My long term thesis is that the Fortune 490 (Fortune 500 minus the ~10 major tech stocks) will need to realize that either they must acquire tech and talent that seeks to disrupt them, or they will get disrupted in the next few years. The tech industry (not just SV) not only has the technical chops needed to innovate their way to better products, services, and economics, but have also found better access to capital that is needed to take on major incumbents heads on. They no longer look for acquisition by an incumbent as only exit strategy — in fact their eyes are on the bigger prize…displacing the incumbents all together. I encourage all to take a look at the companies in Fortune 500, and see how many we think are not at risk of major disruption that could leave them as perhaps only a fraction of the size/influence they have today.
- Some spaces I continue to be curious about: Memory, food, sleep, and what ‘peace dividends of autonomous car wars’ will bring to my thesis of sensors+connectivity+analytics=insights+automation. I am also curious how technology is affecting the pace/nature of academic research, and the path from research to commercialization. While some innovations can be rather significant and game-changing in the long run, they often enter consumer use in a simpler format, with a clear utility. We are seeing some great examples of that — from autonomous systems, to voice-devices, to AI-enabled cameras, to neural interfaces. 2019 will surprise us with more, I am sure!