Foresight is 2020

Venture capital predictions for the coming decade

Scott Lenet
Jan 6, 2020 · 9 min read
Image: Shutterstock

In December and January, it’s fashionable for pundits to make predictions for the coming year; as a venture investor, I feel pressure to look further out. Venture capital provides a unique perspective on the future, because the plans of early stage startups illustrate a roadmap for how technology trends and markets might unfold. The earliest stage companies can lag the market by five to seven years or more, giving potential glimpses of what may happen down the road.

Given my “perch” as a VC and the fact that we are entering a decade some are hoping will resemble the roaring 20s of the last century, I thought I would share my own personal (and obviously very subjective) innovation forecast for the next ten years:

If you think we have too many choices now, just wait.

I recently met with an entrepreneur working on a technology to help consumers select TV shows based on mood instead of genre. She told me a fascinating story of the market research she conducted with Millennials, who described themselves as overwhelmed by the options on Netflix. She said these consumers asked for linear-style programming that just plays when they turn on the TV! As choices continue to expand, investors will find opportunities throughout the entire decade to fund startups that personalize and simplify everything from our media consumption, to our food, schedules, communications, dating choices, healthcare, and more. Ultimately, consumers will demand everything be tailored, and then delivered in “one click” or less. In many ways, the “mass customization” concept of the 1980s will finally arrive.

Investors and entrepreneurs love “big data,” but despite the proliferation of smart devices, tracking technologies, and historically inexpensive data collection, innovators in this space still face an existential question: what can we do with all this data?

My venture capital career spans three decades and I’ve met many startups hoping to transition from product company to data company — few successfully make the leap. Barriers include establishing trust, reaching a critical mass of data, and identifying predictive data that has clear economic value for customers.

VCs will score some hits with data science startups but will lose more money than they make. By the middle of the decade, investors will begin to shy away from these deals after recognizing that tech giants and other large corporations are better positioned to collect, analyze, and use large data sets. Machine learning algorithms will begin to commoditize, especially for analyzing consumer behavior. As an aside, data science degrees coveted today will become much less valuable by the end of the decade when computers clearly surpass human data analysis skills.

Gen Y Millennials will start buying houses and cars and stuff as they age into true adulthood and have kids. It will become evident that while they still crave experiences, they care about the material world more than has been advertised.

Gen Z, on the other hand, will still be young and unencumbered during the 20s. As a result, this generation will flex its muscle to do something about climate change, demanding more social responsibility from their brands of choice.

Baby Boomers will spend lots and lots of money, composing the most lucrative target for products and services. They will emulate their grandchildren in Gens Y and Z by emphasizing experiences, while simultaneously maintaining their stereotypical materialism.

While e-commerce will continue to grow, it will become apparent that the deaths of offline retail and malls have been greatly exaggerated. Retailers will adapt with omni-channel strategies that blend the best of offline and online approaches, catering to the preferences and needs of these demographic segments. Some brands of the past will die, but new brands will take their place. All of this activity will provide ample opportunity for consumer sector investors.

(My own generation — Gen X — will continue to work hard and complain about everyone else)

Our healthcare system will experience massive change during the next decade, but efficiency gains will be marginal and costs will continue to rise. Our society will eventually figure out a fair distribution of expense and responsibility between the government, providers, insurers, and patients, but meaningful progress is more than a decade away.

Venture capitalist Lisa Suennen notes:

“We have been successful in improving access and even quality and personalization of care in some areas, but healthcare startups have demonstrated a marked lack of rigor with respect to proving economic ROI. This is compounded by the rapid aging of the population, the constant flow of new and expensive drugs, the increasing cost of hospital-based services, and the underlying mismatch of financial incentives in our healthcare system that drives cost up. As a result, it has proven extremely challenging to convert the extensive venture investments made in healthcare into real cost-reduction for the system as a whole.”

In the interim, investors will continue to fund every category of healthcare. The greatest allocation growth will be in digital health diagnostics and therapeutics, in an attempt to minimize costs and maximize the delivery of health benefits outside the clinic. Healthcare will be a bonanza private investment market in the 2020s, and even bigger in the 2030s.

Americans like to improve our eating habits, making marginally healthier choices given the opportunity — provided we do not sacrifice taste. Even traditional fast food giants buy into the plant-based food trend, with significant effort devoted to reproducing the texture and flavor of animal protein. As these technologies and manufacturing techniques mature during the first half of the decade, expect continued activity from investors in this category.

About ten years ago I was on an investor panel and was asked what I thought would be the next big thing in venture. To be a little provocative, I described how “extra sensory perception” would allow a minimal input interface between humans and computers. While this has not become a mainstream investment trend yet, computers are increasingly skilled at anticipating our needs, assessing our facial expressions, and even reading our thoughts. Simulated “ESP” has mostly been reserved for medical applications to date, but will cross over into mass market applications by the end of the next decade as we move beyond mobile phones to the next paradigm of personal computing devices. For what it’s worth, I predict that the next generation device will not be smart glasses, even if they do look good on Tony Stark and Apple is ready to join the fray.

While we may not have the ability to request “tea, Earl Grey, hot” by the end of the 20s, the industrial applications for on-demand, 3D printed products will create substantial opportunities and disruptions in construction, real estate, the tool and die industry, transportation, and many other sectors. VCs will place record investments in this category by the middle of the decade.

Facebook is at the center of a partisan news maelstrom, and Mark Zuckerberg has gone on record saying that he believes the future of social media will be private messaging, which implies that the “echo chamber” effect will intensify. This will indeed be true for the majority of the decade, but just when it seems like we have reached the death of fact-based journalism, the pendulum will swing and media consumption patterns will emphasize trust, objectivity, and a new wave of enlightenment values.

Social media services themselves will come and go, occupying a limited role as sources of truth and attracting minimal attention from venture capitalists. The category will ultimately be seen as a fad of the 2010s. Twitter will survive, subject to regulation as a public utility.

We live in a turbulent political climate, but even though investors are increasingly outspoken regarding their social and economic views, this rarely translates into funding for political startups. Companies providing technical support for election security might fit the “picks and shovels” tactic that VCs prefer in markets like this, but generally speaking, investors shy away from anything that sells to the government. And politicians on both sides of the aisle are notoriously bad startup customers: they often pay late, when they pay at all. VCs will continue to stay away from politics with their fund investments.

On the other hand, religion is an overlooked, gargantuan market whose fragmented entrants have made limited progress in the digital transformations that have already modernized so many other industries. VCs have typically avoided this sector, too; as many investors and entrepreneurs are themselves not religious. Yet religion offers ardent end-consumers, extraordinary insulation from regulatory challenges, and limited venture-funded competition. We will see multiple billion dollar religion startups by the middle of the decade.

Our world will continue to speed up and get more complicated, just like the advanced levels of a video game. Rogue drones, designer diseases, and airborne computer viruses are some of the new dangers that will require next level defense. In response, a new industry will emerge to enable personal protection against everything from hacking to pathogens, and investors will begin funding this nascent category by the end of the decade. In 2020, headphones will still send a “don’t talk to me” signal, but by 2030, personal force fields will elevate anti-social behavior to a new plateau.

VCs have historically focused on scalable technologies that create economic value through disruption and the elimination of jobs, but during the 20s they will consider opportunities that defend against disruption and maintain employment. As a result, investors will finally do more than just talk about the future of work. Enterprises that emphasize what computers can’t do — psychology, education, custom furniture, architecture, creative arts, massage therapy — will create emotional resonance and attract a surprising amount of investor attention. By the end of the decade, this investment theme will begin to address how humans and robots and computers can work together effectively.

Corporate VC (“CVC”) grew during the last decade. According to data from Pitchbook and the National Venture Capital Association, in 2010 CVCs funded 562 out of 5,409 deals in the United States. By 2018, corporations participated in 1,443 of 8,948 deals domestically. This participation represents a rise from from 10.4% to 16.1%, with hundreds of new firms forming venture capital programs during the last decade. Contrary to expectations that CVCs will retrench during the next downturn, the current trend will continue. By the end of the coming decade, CVCs will compose approximately half of the venture capital market by global deal volume.

Some of these predictions may seem obvious and others outlandish. I would love to hear your predictions for the next decade. Please find me on Twitter at the link below and let’s debate the future.

This article originally appeared on Forbes.

Scott Lenet is President of Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.

Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by Touchdown or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.

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