A Decade in Review — Laying the Foundation for the Next Decade of Venture Investing

Part I: Setting The Stage

We’re kicking off 2023 and some would argue perhaps it’s an odd time to pen thoughts on the promise of the next decade, but I beg to differ. We are in a pivotal year. We are coming off the back of a slow but sure post-pandemic economic recovery, all while global central banks attempt to rein in inflation which inadvertently slays growth in the economy as well as employment. Then you add to it a global geopolitical hotpot, with polarization all but clear and closer to home, the venture and growth capital practitioners have been bombarded with hubris of financing over the past two years. To top it all off, despite the gloomy macro-environment, there is record-breaking venture capital dry powder that everyone is talking about.

It begs the question — so what now? Where do we go from here? The article is a proverbial attempt at taking a bird’s eye view and exploring my thoughts over a series of articles on how a few interconnected themes will play out over the next decade. We will find ourselves as an industry rallied to backing founders and companies within these themes, for a variety of reasons — call it cyclicality, contrarian theses, a ripe setting for innovation, or simply a human and climate existential crisis.

In this article, I will attempt to keep it plain and introspective — assessing where we have come, so we can look to the future of where we’re going. Perhaps, worthwhile inspecting some of the mundane but critical underlying technologies that evade us and the multi-faceted implications they had.

Where Are We Now?

We are in the early innings of digital transformation. The last decade is well understood to have been an era of mobile-led applications (e.g. social media, gaming); cloud-led applications; decentralization; as well as the blossoming of biology-driven healthcare and climate technologies. For instance, in 2010 there were 970M social media users, which ballooned to 3.9B by 2020 (and growing!). In terms of cloud penetration, 2020 was the first year where enterprise cloud infrastructure spending surpassed on-premise spending. Cloud penetration has enabled the SaaS software market to grow from 3% (2010) to 25% (2019). These were the key innovation milestones that brought us to where we are today:

Mobile-led Applications

• 4G — This offered a 10x speed improvement over 3G, greatly improving users’ mobile experience. It led to a dramatic increase in time spent on mobile devices from 32 mins in 2010 to 132 mins in 2019. Its innovation enabled the social media, sharing economy, and gaming industries to thrive.
• GPU (Graphical Processing Unit) — While 1999 was the first year that the GPU was introduced to accelerate the rendering of 3D graphics, the commercial applications in computing and gaming didn’t greatly improve until the mid-2010s with the introduction of a new chip design by the company AMD and a competing chip by Intel. This enhanced the ability to compute on mobile devices. However, it was AMD’s later chip innovation in 2016 that dawned the age of mobile gaming ushered in by advances in reducing power consumption, making gaming on mobile devices viable.
• Data creation and processing — the acceleration of data generation and processing has led to better consumer/enterprise-facing applications; the increase in “eyeballs” has lured advertising dollars to search and social content platforms that have become giant walled gardens. These platforms in turn have become aggregators of information (and disinformation). Given the amount of first-party and third-party aggregated data these mega-platforms have on us, the average consumer has also awakened to the notion of privacy concerns.

Cloud-led Applications

• Centralized cloud infrastructure — I label AWS/Azure/GCP, “the three Cloud-musketeers” as they have led the charge on powering enterprises to begin using cost-efficient and on-demand cloud infrastructure for data. Public cloud storage has gained 20% to 30% market share over the nine-year period from 2010 to 2019. Even so, there is still a lot of untapped potential given the uneven market penetration across industries.
• Such infrastructure at a distributed level has enabled enterprises to shift massive data workloads to the cloud. Abstraction of software into the cloud has truly enabled software to “eat the world” with cost-effective and broad distribution. It has enabled AI/ML at scale and supported the “remote work” and “future of work” movements. More data in public clouds has also given rise to the prevalence of developer tools to create, deploy, control, monitor, analyze and secure workloads and applications.

Decentralization

• Ethereum — introduced in 2015, Ethereum has quickly become the backbone of decentralized application development. There are a few reasons why Ethereum’s intrinsic value has increased over time. Specifically, they are — 1) the ability to execute programmatic smart contracts that power decentralized applications (DApps) like decentralized finance (DeFi) and non-fungible tokens (NFTs); 2) a robust developer network working to build Ethereum as core blockchain infrastructure; 3) an energy-efficient “proof-of-stake” consensus model; 4) the evolving ability to scale and execute transactions speedily.
• While decentralization through blockchain has a much longer runway to achieve broader enterprise and daily-life applications, it has honed in on cryptocurrencies as a proxy to showcase its potential use cases, primarily targeted at consumers as a medium of value exchange. Bitcoin’s value grew 9M% between 2010–2019 and associatively the crypto-universe has seen a lot of speculative movements. Though more recently, consumer, institutional and regulatory trust in the crypto-universe has been shaken and has demonstrated the interconnectedness of market participants. A reflection of this is Bitcoin’s drop in value from a height of $61,000+ in Oct’21 to as low as $16,000+ in Dec’22. But this is not the end of cryptocurrencies, though perhaps decentralized control needs some form of centralized oversight — just a contrarian thought.
• A lot of venture capital dollars over the last decade have gone into making the user experience better for these largely consumer-facing financial applications of blockchain (cryptocurrencies). These include investments in: better on-/off-ramps for crypto; avenues to buy, store, and trade; as well as infrastructure for anti-money laundering (AML), know-your-consumer (KYC) and AML guidelines to secure the ecosystem from bad actors and to build much-needed stability and trust in the alternative financial system.

Biology-driven healthcare

• Genomics — Genomics, a study of the whole or part of the genome and its interactions to influence downstream biological products has become available in a cost-effective manner for venture-backed companies. The cost of genome sequencing has dropped from $50,000 (2010) to <$600 (2019) enabled by innovations in sequencing methods and machines. In combination with cloud infrastructure, the last decade has shown us glimpses of how genomic data can be parsed and recombined with traditional methods of drug discovery to bring new drugs into the clinic. More importantly, it has enabled the exploration of remedies for rare and/or poorly understood health conditions.

Climate technologies

• Climate-tech has certainly gained traction over the last decade. The technologies are innumerable and approaches have ranged from electrification, to operationalizing massive renewable grids, to new materials, synthetic biology, as well as better telemetry that captures industrial and household data helping conserve energy and lower greenhouse emissions.
• (As a note: personally, I am alarmed and yet intrigued by the scope of work left to be done in agri-food. In 2019, 31% of global carbon emissions were attributable to agrifood systems. For example, there have been early attempts of leveraging cloud infrastructure to improve seed genetics; and IoT to improve supply chains but it is barely scratching the surface.)

Where Do We Go From Here?

As described at the beginning, the decade from here on is a complex one. The venture builders and funders will have to adopt a design thinking lens in solving the needs of customers, enterprises, and the planet. A simple example of reframing the builder/funder lens takes us back to 2007 when Nokia and Apple were vying for being the top consumer mobile device. The fundamentally different questions they asked, led to different consequences:

• Nokia: “What other features can I put into this Qwerty Keyboard phone?
• Apple: “Do customers want a hand-held computer that can make phone calls?

Behind the launch of the iPhone and the dawn of the mobile computing paradigm, was a complex evaluation and cost-benefit analyses (CBA) of features, functionalities, and form factors that met the north star of superior consumer experience that built longitudinal brand loyalty to Apple. A similar CBA will need to be applied by us as venture builders and backers as we evaluate for opportunities and challenges in industries and in addressing the needs of varying stakeholders — some with a voice (e.g. enterprises/ small and medium enterprises/consumers) and some without (e.g. the planet, the human body).

As I sat down to imagine the next decade and what my work could look like, I emerged with excitement for the immense opportunities to uncover companies and nurture relationships with founders building solutions at the interface of the themes you will get to read about in the following articles. But a taste of these exciting opportunities includes technologies such as 5G, low-power silicon, and connectivity infrastructure, which would move cloud to the edge, offering benefits like autonomous decision-making independent of bandwidth speed, data compliance, and data security.

In the next part of this series, I look forward to discussing four themes 1) unbundling and rebundling of the Enterprise; 2) small and medium enterprises — the backbone of nations; 3) software goes…vertical; 4) re-imagining engineering. It’s important to look back at the decade of innovations that have set us up for a complex yet exciting future ahead.

I’m Arvind Ayyala, Partner on Geodesic Capital’s investment team. Having invested across enterprise software/fintech/health and climate-tech, I am eager to collaborate with founders, practitioners and fellow investors. Please do not hesitate to reach me via LinkedIn.