Millennials will rise to power!
It seems like 2019 is starting with a cool down. After several years of price inflation in most assets, many investors are expecting a recession in the near term. The good thing is that, being expected, it probably won’t become too dramatic.
Another aspect to keep in mind is that recessions are usually very fruitful periods in venture. I’m not sure about the reasons, but my guess is:
- Job opportunities become more scarce, which means that some smart and driven people are forced (or encouraged) to start their own business.
- Funding becomes more tight, which means that only the most impactful and disruptive opportunities get financed.
- “Zombie companies” finally get killed: since getting money is harder, some “zombie companies” will die, freeing talents on the market.
That being said, there’s a trend that I’m especially bullish about for the next years: the arrival of millennials to power.
Millennials, who are mostly digital natives, have higher disposable incomes and are reaching positions of power within their company as they progress in their career. These “digital native customers” are not afraid of startups and look for customer-centric products. I believe they’ll drive the switch from “old school” to “new generation” products in many industries. These are great customers for startups.
At the same time, many of the most important web and mobile technologies have reached maturity. It means that they are well understood and are democratised. In parallel, several of more recent technologies — machine learning in particular — are progressing very fast, and enabling a myriad of new use cases (I’m particularly excited by new applications in drones, robotics, voice and synthetic bio, which show that the lines between online and offline is blurring).
When you combine these two trends, you can see the emergence of new massive markets that are shifting or being created as we speak :)
Bold prediction: General Electric will leave the top 50 of the fortune 500, as another sign of the change of age from the industrial to the tech economy.
Child-related bureaucracy needs a major overhaul
Giving birth is a life-changing and challenging experience in many ways. Yet the act itself, albeit quite scary and painful, almost pales in comparison to the associated bureaucracy parents face (at least in Germany).
Once the news breaks, the process starts. First, one needs to find a doctor and a midwife. Each starts offline documentation: a paper book (doctors) and a paper-log (midwife). With each examination, detailed information regarding pregnancy and/or babies’ condition is manually entered into either the book or the log and often into both. Needless to mention, paperwork may take almost as long as the check-up itself. Before birth, one needs to register with a hospital and fill in yet another (partially redundant) set of forms. After the birth, the baby gets its own paper book and a separate vaccination book. And the medical side of things is just the beginning.
What follows is an excruciating series of actions with various authorities (like the acknowledgement of paternity, registering the baby to obtain the birth certificate, tax ID, health insurance, passport, parental allowance, child allowance, kindergarten voucher, etc.). Almost every step requires paperwork and postal service, many entail physical presence. Oftentimes, both the information requested and the supporting documentation are redundant. Response times are slow as the backlog is significant due to clerks being busy with inputting data into their local systems or filing the papers rather than actually helping the parents. And the climax of this crusade is still to come: the search for a nursery spot. As no central availabilities register exists, no one knows what the supply or demand is. Parents apply for multiple nurseries (and applying with 30–50 or more institutions is quite common in busy areas), and the nurseries face the influx of countless of applications for just a few available spots which they somehow need to manage.
Considering the waste involved and the scarcity of resources, I hope that initiatives like Little Bird will experience a serious push in 2019, and that change to digital is possible independently from the clerical inertia.
Bold Prediction: Berlin will have a central digital freely accessible kindergarten register by the end of 2019.
Increasing productivity and human-machine collaboration will dominate the near future of manufacturing
While many people think that fully automated factories — so called lights-out factories — are the future, I believe this won’t be the case anytime soon. A new study by A.T. Kearny just revealed that humans still perform 72% of manufacturing tasks, and the number of factory robots currently in use — 1.7 million — compared to the number of factory workers worldwide — 345 million — also speaks for itself. In addition, in terms of value creation, humans create nearly three times the value of machines according to the same study.
Therefore, I believe the real winners in the next years will be the companies that focus on increasing the productivity of factory workers and improve collaboration between workers and machines. We already saw companies that make it faster and easier to program robots, enable workers to fulfill more orders with less labor or re-engineer entire production processes. I’m convinced that we will see more of these companies going forward.
As the pace of innovation in this sector accelerates, incumbents feel the increasing pressure to work more with startups. This will lead to a strong increase of M&A, as well as more strategic partnerships early on — such as the smart workstation from Tulip together with Bosch for example. 2019 will be a great year for entrepreneurs in this sector since both incumbents and investors will pay more attention to industrial startups.
Bold Prediction: Every European Series A VC firm will have at least one investment in manufacturing by the end of 2019.
The Tokenization of Everything
The narrative in 2019 will shift away from ICOs and utility tokens to security tokens, which, unlike their counterparts, give holders recourse to profits or revenues, and are subject to securities regulation. The tokenization of traditional financial instruments such as stock, bonds, loans, private equity and venture capital investments will become increasingly common. The advantages of tokenizing these assets are that compliance can be hard-coded, the assets can be fractionalised, making them more affordable for some investors, and much of the back office, auditing and settlement processes can be automated, reducing transaction fees, amongst other things.
2018 already paved the way for a number of tokenized fund launches such as Blockchain Capital and SPiCE VC. Following on from this, 2019 kicked off with an announcement from DX.Exchange that it would offer digital tokens based on shares of 10 Nasdaq-listed companies including Apple, Facebook and Tesla. This will give traders the ability to gain exposure to Nasdaq stocks even when the exchange is closed and allow buyers to purchase a fraction of a share. This trend will continue throughout the year, with traditional companies also launching their own security tokens as an alternative to crowdfunding or going public. We will also see the proliferation of projects aiming to tokenize real assets, from fine art to real estate and automobiles, amongst other things.
However, I suspect that achieving widespread adoption for this new asset class will take a number of years. As it stands, there is a lack of infrastructure to support the issuance, compliance and trading of security tokens and insufficient liquidity across exchanges. This will need to be built out over the course of 2019 so as to facilitate usage in the long run.
Algorithmic feed(s) in B2B software
B2B products are often inspired by consumer products. As consumers, we’re used to enjoying the highly customized experience offered by most consumer services. Our feeds on Twitter, Facebook, and Instagram are unique and differ from our friends’ ones. Going even further, the Chinese app TikTok chooses the content for each user purely based on AI, almost no user interaction involved. All these products rely on (sophisticated) logistic regressions that try to predict which pieces of content we’re most likely to appreciate (this article explains it in greater detail). Spotify and Netflix use collaborative filtering extensively to recommend us the next song/movie we should check (look at the Netflix Prize if you’re interested).
We could even argue that these services are not only defensible businesses because they own the largest libraries of content, but also because their datasets of metadata — on how we engage with their software (e.g. time spent per spot, time to scroll, number of likes/listen) — are proprietary and very hard to replicate for a competitor. The more we use these services, the more metadata we give them, the better the feed is, and the less likely we are going to churn: data network effect at play.
In 2019, I believe that we’ll see more and more B2B software offering personalized content and feeds based on the collection of such metadata. From intelligent registration flows down to customized farm management software for the dairy industry, the opportunities are endless.
NewLaw — Lawyers will not be the bad guys anymore.
There is an ongoing trend in which law firms make use of AI, data analytics and tech solutions that contribute to a more transparent, efficient and adaptable workflow management. NewLaw firms constitute organizations that aim to match the ability and experience of the different lawyers in the team with the needs of the client — always optimizing for transparency (and therefore getting rid of pyramidal hierarchies) and costs.
My (not so immediate) 2019 prediction is that NewLaw firms will dethrone traditional law firms (BigLaw). The use of technology to speed up legal services, to charge by service provided (and not by hours), to optimize for flexibility (also in terms of working hours) and simplicity, might drive this change. This model shift would especially benefit SMEs. Nobody wants an over-engineered contract, and, due to the hyper-competitive environment we find ourselves right now, it’s probably time for lawyers to become a bit more customer-centric.
If you want to stay on top of this trend:
- We recently saw that Atrium raised $65M from a16z.
- Natalia Martos is killing the NewLaw concept in Spain with Legal Army.
- We are proud investors in Juro, the most beautiful end-to-end contract management tool in the market.
- If you have any case law question, Ross might have an answer for you.
- You can subscribe to Artificial Lawyer for more news on this topic.
The ride-hailing and mobility segment is set for major change in 2019.
While money keeps pouring in, including from car OEMs fearing for their traditional markets and private equity increasingly comfortable with this space, investors at the same time become much more selective. Start-ups without a clear path to leadership in at least one significant (or several smaller) market(s) will find it harder to get funding. Fast and aggressive growth will become even more important, as will creative fundraising. Those that fall behind on any of these categories will, at an increasing rate, fold or be rolled into a stronger competitor.
Main beneficiaries will be the big players that are already well funded like Uber, Lyft and Didi Chuxing, but also the early movers in the bike and scooter market (first and foremost Lime and Bird in the US, but likely also the one or two winners of the fierce European race). Consolidation is set to increase as the sector matures — and will get an additional boost as the major players seek to transform themselves into fully-integrated mobility providers, offering everything from autonomous taxis, ride-hailing, and ride-sharing to bike and scooter rentals.
Bold prediction: Uber will go public; it’s listing will be bigger than those of Alibaba and Facebook.
2019: The Classic Transition Year
After a ten-year economic expansion that benefitted both startups and large companies, we are entering a transition period.
We’ll see a transition in the economy: the U.S., Europe, and most of the rest of the world is not quite in a recession, and we may not be there by the end of 2019, but we are clearly closer to the end of the economic cycle than to the beginning, and we can probably expect continuing cooling off and a bumpy ride.
We’ll see a transition in the public markets: valuations are down, and the IPO market will likely slow. The best companies will still be able to get public, but we’ll see a race from the next tier of companies to get out early in the year to avoid a potential closing of the IPO window. (Although there won’t be any filings on the U.S. markets until the government shutdown ends…)
We’ll see a transition in the private markets: plenty of venture money is still available, but valuations are softening, the checks aren’t flowing the way they were, and we’ll see companies refill their coffers while times are still (relatively) good. Smart founders will execute plans that make their cash last a few years to bridge their companies to the other side of a possible economic slowdown.
We’ll see a transition in new market opportunities: great opportunities still exist in SaaS, mobile, marketplaces, and cloud, but the low-hanging fruit has long been picked. The best opportunities in crypto are not completely evident yet, AR and VR are perpetually “two years away,” 5G is at the start of the hype cycle and won’t have an impact for a few years.
We’ll see a transition with startup founders. Public sentiment is turning against the tech industry because of mistakes and bad behavior from the tech giants, plus the fact that they are now just too big to be lovable. Startups are not as trendy as they were, and less venture money will be available, so some of the “fair weather” founders looking for a lucrative quick hit may flee to larger companies, leaving behind the core of geeks and misfits who have always started companies in both good markets and bad.
This might not sound like the most exciting time to be an investor, but many of the world’s best companies, like Google, PayPal, and Facebook, were started under very similar conditions. History says that dozens of billion dollar startups will be founded over the next few years, and they’ll look different than the previous generation. Our job is to find them!
SMBs: the platformization of the SaaS landscape
SMBs: the platformization of the SaaS landscape. I covered this topic in more details here, but in the last couple of years we’ve seen the rise of SaaS platforms such as Salesforce, Shopify, Hubspot, Zendesk etc… This trend has been accelerating in 2018 with more platforms in more categories (e.g inVision and Intercom launching their app store). This trend impacts mostly the SMB segment, so far, as it is more convenient for this customer segment to consume software through a couple of “hubs”. My prediction is that in 2019 it will be crucial for founders of SMB SaaS to adapt their product as well as their marketing and sales strategy to this environment.
Enterprise: the verticalization of the SaaS landscape. On the other hand, despite the fact that Salesforce is a dominant platform in the enterprise segment, I believe that adopting a “vertical” approach is still a relevant strategy for founders hunting whales. As pointed by Okta CEO, SaaS is still only 10% of all software spending in this segment. The SaaS model has not yet penetrated most “old school” industries, and the way to win, in most cases, will be by offering a vertically integrated product.
My bold prediction: Facebook won’t suffer any #privacy or #surveillance controversy in 2019.