Why The Disruptive Industry Is Not A Cure-all For Business Growth

Published in

Leta Capital

5 min readOct 28, 2022

Predicting the future of tech is a risky business. However, many agencies, think tanks, and consulting firms try their best to forestall trends.

With that being said, experts and forecasters are to frame identified trends as “enabling CEOs to deliver growth, digitalization, and efficiency”, or at the very least, critical and strategic in the sense of their “significant disruptive potential”. But do such claims meet the reality of the market? In this feature, we’ll try to find out if there is a substantial correlation between highly capitalized businesses and the trendy niches they operate in.

Methodology

Many institutions publish futuristic reports, and Gartner is one of the biggest and most reputable research and consulting companies specializing in information technology markets. We extracted data from the reports of Gartner Strategic Technology Trends, which are presented on an annual basis. We took the trends predicted by Gartner for 6 years from 2012 to 2017:

We took this period because most venture funds operate within 7–10 years horizon, during which managers tend to return money to the fund’s LPs. They were grouped by category.

Then the trend were analyzed by the number of transactions and the amount of invested capital.

The number and volume of transactions and predictions by trends

Judging by the number of deals, about half of the trends were predicted correctly. It can be seen that AI & Big Data, Mobile devices, Mobile software, Cloud computing, Analytics have become significant trends, while Cloud computing and Analytics trends have shown to do even better.

Comparison of trends in the volume of transactions expands on the data above. Note that the AI & Big Data trend is in 3rd place in terms of invested capital. This may be due to the fact that the volume of a large part of the transactions is not disclosed.

Now let’s pay attention to how many forecasts Gartner has allocated for each trend.

Gartner researchers often mention IoT, which does not correlate with the market activity of VCs and founders. It is also worth highlighting that a number of predictions devoted to 3D printing and the number of predictions related to Analytics are quite the same. But the investment rate in the latter is almost 28 times (!) higher.

Report highlights

According to the analysis, the most failed predictions were IoT and 3D printing.

IoT — The Internet of Things (IoT) describes the network of physical objects embedded with sensors, software, and other technologies to connect and exchange data with other devices and systems over the internet. IoT products are supposed to support Industry 4.0 revolution — make factories and production smart and efficient, but according to Cisco report, companies considered that 76% of their IoT initiatives fail. This can be explained by the technological complexity and high cost of implementation, as well as the low readiness of production facilities for implementation.

3D printing is a manufacturing process that creates a physical object from a digital model file. Such machines are supposed to be used both in homes and factories.

3D printing industry still needs to take off due to operational complexity and insufficient technological development.

It may seem that System Architecture is a failed trend too, but not everything is so clear here, since System Architecture includes a large number of applications from different fields, which is why there is a large error in evaluating transactions in this area.

On the other hand, AI, Analytics software and Cloud computing are booming.

Cloud service provides IT resources on-demand through the internet and based on subscription licensing and centralized hosting. It enables businesses to run software without installing it. It offers redundancy, security, stability, and also eliminates the problem of buying and maintaining hardware. To show how extensive the use of the cloud is: it is enough that 50% of the world’s corporate data is stored in the cloud, and 90% of large enterprises have adopted a multi-cloud infrastructure.

Data analytics software has a long history since computers invaded the masses, and this area continues to improve using the latest technologies, including AI.

Continuous improvement of analytical software is easy to explain: this software directly affects companies’ finances.

Now with the exponential growth of the amount of data in the world, with cheaper, faster, and more accessible computing power, with advances in algorithms (such as Deep Learning),

Artificial intelligence has been used in almost all areas of business activity, and its adoption continues. For example, the number of businesses adopting AI grew by 270% in 4 years and rose to 37%.

Causes and effects

At the same time, some areas blew up the market, nevertheless have never appeared in the reports. A vivid example is EdTech. The online education market has grown a lot since the COVID19 pandemic started. The global EdTech and smart classroom market size grew from USD 76.4 billion in 2019 to USD 254.80 billion in 2021, while the global 3D printing market size was valued at $15.10 billion in 2021. LETA Capital portfolio Novakid — an online English language school for children founded in 2017 is an excellent example of how a company raised its next rounds with the rise of EdTech.

Let’s note that the experts estimated the global internet of things market size to be $384.70 billion in 2021, which is close to AI and Cloud computing market estimation ($422.37+ billion and $405.65 billion, respectfully). Such numbers may have happened because the IoT market has a significant presence of tech giants — companies that develop this direction along with many others like Siemens, Microsoft, AWS. It is understandable: the development of IoT systems is complex and expensive since it often includes complex hardware. Such a development is possible for corporations or startups with considerable funding, which is hard to raise.

VC’s perspective

Predicting the future is hard and almost impossible to do perfectly. Therefore, it is better not to rely on trends but to start a business in the vertical that you understand and believe in. Even if the industry is not trending and investors are not so crazy about it, this is not a reason not to do business in it. The idea, product and metrics in a startup are much more important than the hype of the industry, including from the point of view of VC.