The start of a year. The start of a decade. What’s to come?
I recently finished watching the 7 Seasons of Mad Men (don’t you love the holiday to be able to do that?) and was struck by what was considered “normal” just 50 years ago, which now seems quite frankly crazy.
Back then, people smoked 2 packs a day and drank martinis at lunch before going back to work. Back then, you drove your newborn by holding them in your arms as you sat without a seatbelt in the front seat.
What do we do now that may no longer be considered “normal” in the future?
- Drinking alcohol? Gen Zs >21 are drinking 20% less than Millennials
- Eating meat? Beyond Meat & Impossible show willingness to forgo meat
- Added sugar? Research is showing us the repercussions of sugar
- Driving cars? Automated driving technology is already here
- Making babies the “old fashioned” way? Frozen eggs as an option for all
These areas all present opportunities but will take longer to play out given they require significant consumer behavior change. This piece, as with my prior year prediction pieces in 2019 and earlier, focuses on what I see as the 10 greatest opportunities over the next year.
1) The next wave of FinTech unicorns will be InsurTech.
The top 10 insurance companies have a combined market cap of over $870bn, yet they have an NPS score of close to 0, one of the lowest amongst all sectors. Many of the companies have antiquated approaches, which is no wonder given several of them, such as the French giant AXA, were founded in the 1800s. Younger generations are refusing to accept the status quo of this poor consumer offering and looking for alternatives which they readily adopt. Incumbents are slow and their strengths (balance sheet, number of branches, existing brand, etc) are built on legacy, lack technology advantages and are possible to disrupt. The online ecosystem is offering new distribution channels, new underwriting methodologies and new communities giving power to the insurer.
2019 saw rapid customer growth rates, inflows of $4bn into insurtech startups and Wefox, Root, Lemonade, Hippo, PolicyBazaar and Next became unicorns. This year I am excited by those companies across insurance with a focus on specialization, proprietary technology and owning the consumer relationship with both a better product and service experience. 2020 will see a significant wave of powerful Insurtech startups.
2) The banks of the future won’t be the banks of the past.
Huge value has been created in Neobanks and the next leg of growth will soon be seen due to changing consumer behaviors. The “why now” behind Neobanks is finally here where customers, especially younger generations as the cohorts of Gen Z mature, have shifted to fully accept (and prefer) non traditional banks. There is far higher engagement with the new banks, giving them a chance to offer and create more value to their customers long term.
Europe paved the way here (with Monzo, Revolut, N26, etc) due to the favorable regulatory environment, which allowed Neobanks to compete head to head. We will now start to see that in other geographies, as well as consolidation. 2020 should be the year where Neobanks become decacorns across multiple countries.
3) Every company will become a FinTech company.
Huge value is being created within FinTech and there will always be those companies which start off as FinTech companies and have finance inbuilt in their DNA. There is a now a new and growing class of company where they add FinTech elements and offerings once they get to a point of scale.
FB put some of its smartest minds on Libra once they realized the size of the crypto pie. Telegram built a valuable crypto offering once they saw the opportunity within their key geographies. Consumerized insurtech businesses are choosing to do the underwriting themselves once they see the opportunity to own their customer and increase margins. Physical product companies want to offer their own warranties once they see the software type margins that warranties give them. Even those who choose not to do it directly themselves, such as Retailers, are partnering with companies like Affirm to offer payment solutions. The finteching of every company has just begun.
4) Influencers will be a scalable, repeatable marketing channel across all sectors.
We have already seen eCommerce companies, such as Stitch Fix, IPO after having built a business using influencers to market successfully. We will likely see TikTok (ByteDance) IPO this year and they attribute much of their early growth to signing up the biggest and most engaged influencers early on. Cameo* found success allowing influencers to monetize their free time. We have already seen games, social media, DTC brands, marketplaces, etc successfully leverage influencers but what about outside consumer?
We will now start to see many more industries start to leverage influencers. B2B software, health and wellness, mobile subscription, FinTech and other sectors are all starting to engage with influencers. Either as investors, content creators, marketers, ambassadors and/or authentic customers, influencers will start to be integrated into companies across multiple sectors to drive their next leg of growth.
5) IRL + URL = The Future of Community.
The loneliness economy is only growing amongst young people as Gen Z feel cut off from friends. This is despite the majority of Gen Zers spending over three hours a day on messaging apps. The issue is that digital communication alone lacks the human connection that we as human beings crave and need. This gives rise to the opportunity to build real communities when you combine both digital (URL) and in person (IRL).
In person communities have risen up over the years in churches, country clubs, pubs, etc. GenZ show that they have far less interest in these areas and the more traditional communities are declining as a result. People are turning to new forms of IRL communities: co-working spaces such as The Wing, VR/AR locations such as The Void and urban theme parks / selfie factories such as Museum of Ice Cream or Rose Mansion. These all represent new technologies or approaches built on top of our existing consumer behavior to seek community. It is this, combined with our preference of experiences over things, which mean IRL will be a consumer trend with longevity. 2020 will take IRL companies to the next level as they expand to integrate URL and create the next stage of communities.
6) Gaming will be viewed as the true social network it is.
Gaming is already the largest form of entertainment today with 2018 revenue of $132bn. Mobile is the largest segment of that, making up 50% of revenue, and the fastest growing. Mobile will remain the platform of choice for 2020, albeit this decade will likely see it leapfrogged by VR, AR, voice or another platform (my bet is on voice!). Whatever the platform, the social aspect is the one that will remain.
We are investors in Epic Games* and saw first hand the way in which Fortnite is used by Gen Z as a social interaction platform. The average session time, the number of sessions per day and the DAU/MAU in popular games are all equal to what we ideally look for in a social media product that is quickly becoming part of pop culture.
7) The next $BN US consumer startup will come from outside Silicon Valley.
The no-code trend allows the democratization of startups to be seen in areas which have not traditionally been seen as technology hubs. There is an increasing focus on other skill sets which can be stronger in other geographic regions. Finance in New York, biotech in Boston, marketing in Los Angeles, gaming in North Carolina, future of work in Atlanta and marketplaces in Chicago to name just a few. These regions now possess the top talent needed in each of those fields.
History doesn’t repeat itself but it rhymes, so having seen this rodeo before certainly helps. Startups outside Silicon Valley may not have had as long a history, at least within tech, but we’ve reached a time where experienced executives outside the Valley have seen startups play out several times before. As a result, the quality of hiring has seen a step change in these geographies.
Capital moves to where the opportunities arise. There used to be a view that it was far harder to raise outside Silicon Valley but given the hundreds of thousands of miles Lightspeed Partners alone traveled in 2019, it shows the desire to invest wherever the great companies are based (actions>words).
8) The Europe tech scene will rise to be a global contender.
We are seeing the rise of European decacorns with Zalando, Supercell and Delivery Hero topping the list. 2 of the top 5 largest exits globally in 2018 were Europe based, Spotify and Adyen, giving a combined exit value of $47bn. The size of Europe makes the prize worth the fight. With 700m people, Europe has over double the population of the US. There are at least 5 large local markets with over 50m people, driving key hubs where successful startup ecosystems are emerging. Hiring is attractive in Europe for several reasons. Europe has excellent STEM education and currently has 5.5m developers vs 4.4m in US with 15 large tech hubs, each with over 50k developers. They also have a systemic cost advantage vs the US especially around engineers and data scientists. In addition, hiring is made easier by the ease of employee migration across Europe (far easier that the US visa system I have found).
Lightspeed has always operated from a global view point. Many of our companies feel they are #1 in their geography but are “an underperforming global business”. That’s where we can help. Our Silicon Valley office works hand in hand with Lightspeed China, India and Israel, sharing cross-border knowledge and best-in-class know how, which we use to help the Lightspeed family portfolio companies. We can not do this properly without including the success of the European ecosystem. Our Europe investments include: Blockchain, White Hat, Candis, Grafana, and Vinted with many more to come as we believe the Europe born decacorn will become the norm, rather than the exception.
Health and Wellness:
9) Average life expectancy will start to rise once again.
The average life expectancy in the US is 78.8 years and has remained flat or declined for much of the past decade. The same is being seen in other countries, such as the UK. The last time this lack of growth was seen was 1915, during WW1 and the Spanish Flu. Despite recent medical advances, drug overdoses (5 out of 7 are from Opioids), obesity, alcohol driven liver issues and suicide are driving life expectancy down.
Many startups are focused on longevity through different approaches:
- Biotech startups like 47* are focused on curing diseases such as cancer
- Food companies, such as Beyond Meat and Impossible Burger, are helping us live a sustainable and healthy life with an alternative to meat
- Mental heath companies like Calm* are encouraging us to train the mind and keep it active and strong over the years
- Vitamin and health companies, such as Goop* and Elysium, are giving us physical supplements to add to our health
10) Changing trends mean B2C consumer health will finally thrive.
Over the years, we have often seen health and wellness entrepreneurs start B2C and quickly pivot to B2B after finding out that the customer’s willingness to pay is far lower than expected (and far lower than the value they derive from the product). As a result, it has been those companies that sell to enterprises (Maven, etc) or focus on insurance (Oscar, Devoted Health, etc) which have found success.
However, the aging population (as shown in the chart opposite), consumers driving health decisions (due to Dr. Google, mobile adoption, high deductible plans, etc) and the de-stigmatization of health issues (driving significant word of mouth in areas not previously often discussed, such as fertility and aging) all help to drive demand in B2C health. We have already seen Calm* become the first mental health unicorn as consumers are willing to pay for meditation and help with sleep. Forward and One Medical have also shown our willingness to pay a premium for a better and faster offering. 2020 will see consumers willing to pay for preventative care, driving real value in B2C health and wellness.
Across Fintech, Social, Geographies, Health and beyond… the times they are a-changin’. In the 2020s, Lightspeed is excited to invest in the change makers building tomorrow’s companies today.
* Denotes a Lightspeed portfolio company.
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