Trends We Are Keeping A Close Eye On
As a data-driven VC fund, every year Nauta Capital’s investment team looks back at the key metrics that influenced some of the fund’s investment decisions and analyse how those data-points will help our investment teams make more informed decisions for the year ahead.
After reviewing our these findings we decided to share some key insights in this post…
AI Supercharging B2B Data and Analytics Startups
Let’s start with the types of sectors the companies we talked to, met and analysed, represented last year. Similar to the year before, companies working on Data and Analytics solutions accounted for nearly 30% of the startups we looked at.
With an overwhelming amount of structured and unstructured data available to companies — both large and small — the race for efficient and innovative ways to use this information overload intelligently is something, we’ve kept a close eye on the last couple of years.
Not only is the data analytics market predicted to surpass $200 billion by 2020, but the industry is driven by the hottest tech trends of recent years: AI and Machine Learning.
Following closely, was another B2B trend: Business Performance. From automation to workflow optimisation and business intelligence, 25% of the companies we looked at were working on improving key day-to-day enterprise challenges in areas such as marketing, HR, legal, logistics, retail and others.
For this year, as Rehber Lookman, one of Nauta’s Investment Managers, puts it:
“While we have seen a diverse range of B2B propositions that provide unique data-sets and decision capabilities to enterprises last year, what will really intrigue me this year is seeing the next generation of paradigms that move beyond this layer and can leverage the core of the corporate network in more meaningful ways.”
The New Shopping Experience
If you’re a massive sci-fi fan like me, I’m sure you’re eagerly anticipating the day the world around you turns into that future dystopian society where flying cars, teleportation, human-like robots (!) and far away commutable galaxies are all the norm.
While all these still remain a distant fantasy, an interesting retail theme that is present in most of these scenarios is the changing face of the in-store shopping experience.
The retail industry is estimated to be worth $28 trillion by next year representing 30% of the world’s GDP, yet the retail industry’s offline experience remains largely undisrupted.
Looking closely at some of the investments Nauta made from its current fund, there is an interesting group of retail-focused portfolio companies (MishiPay, Nextail, Geoblink) — all of which are driving the transformation of the sector.
A prime example of this is MishiPay. The UK-based company announced this month their leading role in the launch of Europe’s first cashier-less store in Austria.
And this rapid transformation of the retail sector is likely to continue this year. Many industry leaders have stated that 2018 is the year when Augmented Reality and Virtual Reality will transform the online and offline shopping experience for the masses while AI will lead the way for personalisation at scale.
Revenue Before Fundraising
From a funding perspective, nearly 40% of the companies we engaged with raising a Series A round, have been operating for at least three years — with an average round of £3.2m being sought.
On top of that, with most showing an annual growth rate of between 50%–100%, there was a strong focus towards revenue generation prior to raising their first institutional fund compared to the year before.
This highlights that B2B startups, especially those based in European, are prioritising on creating viable, revenue-generating companies first before raising their Series A round.
Of course, some of this data is influenced by our increased activity in looking at more UK-based companies and our capital efficiency investment thesis, nevertheless, there is a strong indication that the ‘growth first, revenue second’ mentality is slowly fading within the European startup ecosystem.
Not All Acquisitions Are By Facebook
We are all pretty familiar with Facebook’s acquisition strategy, if not, just take a look at this Crunchbase list.
But how about micro acquisitions? This is where a fast-growing scale-up — usually post Series B — buys a complimentary startup to support their expansion strategy.
Last year, Nauta’s portfolio company, Brandwatch, announced its acquisition of BuzzSumo to further dominate the social media monitoring landscape.
Similarly, in January 2018 BeMyEye acquired Task360 — a move which positioned BeMyEye as the European leader in the crowdsourced in-store data space. While these ‘micro acquisitions’ are certainly not a new trend, we suspect more European startups will explore this growth strategy in 2018.
Last but not least, we’re excited to see how blockchain technology will impact industries beyond finance.
The buzz around blockchain has almost exclusively been around cryptocurrencies or within the financial services in the previous years.
Commenting on our interest in this space, Nauta’s GP, Carles Ferrer, explains:
“Decentralisation models are here to stay. We feel this is one of the largest technology transformations in the past generation and the impact on very diverse industries can be very large.”
“Having said that, we try to separate the buzz around ICOs and cryptocurrencies in general from the true power of the technology that is being developed around this concept. Clearly, some of the future leaders are being built now and compared to other technology shifts, this one comes with a degree of speed, a surprise to regulators (!!) and traditional players, and high knowledge barrier of entry. All these reasons make this technology very interesting.”
Indeed, for Nauta, what will be interesting this year is how early-stage companies will use what’s being dubbed as the ‘second generation of internet or industry 4.0’ to transform areas including retail, digital marketing, healthcare, supply chain. security and privacy, or even civic engagement.