By David J. Blumberg
As 2019 comes to a close, the team at Blumberg Capital has been reflecting on the past year as well as planning for the next. This year we saw unprecedented levels of late-stage funding and high degrees of volatility in recent IPOs and late stage private companies. At the same time there continues to be significant largely AI-driven technological innovations in early stage FinTech, cybersecurity, healthcare transportation mobility and more.
Looking ahead, our team put together some thoughts on what 2020 will bring – both in terms of venture capital trends and the type of technology and industries where we invest.
– Pre-Seed Investing: In 2020, we’ll see more pre-seed investing blurring the distinction between angel and institutional investors. The term “pre-seed” is really just a terminology change from what was formerly called angel financing. The term more accurately describes the new mixture of VC funds and individuals. On the plus side, this means more opportunities for more companies to get started. The negative is that many of those syndicates will not have strong capability for follow-on financings, may be encumbered with non-standard industry terms and may not provide positive “investment signal.”
–Trade Sanctions Impacting VCs: In 2020, we expect that many startups and established businesses may avoid China, Russia and other countries impacted by sanctions or the threat thereof. These are uncertain environments with the potential for great volatility and macro risks, and most early-stage venture companies don’t have the luxury of making such a gamble. Similarly, Western VC funds and CEOs seem to be more wary of taking investment from these markets because of the risk of FX controls and of rules like CFIUS, OFAC and others.
– Explore New Tech Hubs: This past year, we’ve seen growth of hiring hubs beyond the pricey, competitive and congested Silicon Valley in welcoming venues around the world. In 2020, we anticipate tech hub expansion across the U.S., in Colorado, Georgia, North Carolina, Tennessee, Texas, Utah, among others. This is partly due to business-friendly environments (e.g. lower taxes and less regulation), lower housing prices and engineering graduates from local universities.
Technology & Industries
–Artificial Intelligence: It’s the public duty and in the private self-interest of technology companies to increase education about AI and promote transparency in its use and applications in order to boost comprehension, rational discourse, and consumer sentiment towards AI adoption. To do so, technology companies will need to share examples of how AI is being used to improve the lives of average Americans and to address real privacy concerns. If done correctly, AI will be more readily understood, appreciated, adopted, and society will benefit from the vast potential of this groundbreaking technology.
–Artificial Intelligence: In 2020 we’ll see a focus on the term ‘Intelligent automation’. The robotic process automation (RPA) market will shed the limitations of rule-based functionality as the coupling of AI/machine learning (ML) and RPA will allow for more complex problems to be solved, leading to new value in workforce efficiency.
–Artificial Intelligence: In 2020, we will begin to see a trend of stress testing ML models in the same way that developers already stress test infrastructure code. Afterall, ML practitioners in organizations from large to small, seek to build stable, repeatable and sustainable models and continuous data pipelines. So the next step for this burgeoning industry will be the development of automated, logical, functional, scalable tests that can be applied to avoid common pitfalls, such as drift, bias and other vulnerabilities.
–Mobility, Transportation & Smart Infrastructure: We hear more discussion about AI and transportation mobility every day. The automotive industry is transforming from exclusively and traditionally product-centric towards a variety of product and service models. As our methods of alternative mobility and transportation evolve, municipalities will increasingly seek to add smart infrastructure, software and hardware as integral parts of their public transportation network. Different modes of transportation will need to connect, intersect and interact so that commuters can move seamlessly from point A to point B. More importantly, these data intensive systems need to be managed by transportation operators, agencies, regulators and others to match vehicles to riders, maximize safety and convenience while minimizing commute time, cost and pollution. This will allow better integration, maintenance and usage of alternative modes of transportation, such as scooters, bikes, shuttles, ride-shares and carpools. We call this collaborative operating grid ‘inter-modal human transport.’
–Healthcare: We recently surveyed consumers and found 81% expect AI to improve their own personal healthcare. The door is open for startups to develop and sell innovative AI-based solutions to providers for better diagnosis, treatment planning, care delivery, aftercare support including digital telemedicine, as well as streamlined processes for sharing medical records and making payments. In 2020, we expect to see more startups targeting the healthcare industry and more healthcare organizations implementing and integrating new solutions.
–FinTech: In 2020, we’ll likely see more partnerships form between fintech startups and large financial institutions. The symbiotic relationship is exhibited in recent news. One example is Wells Fargo starting a venture fund. Another is Goldman Sachs leading Trulioo’s Series C financing (also funded by Citi, Santander and existing investor AMEX). Traditional banks value startups for their speed and ability to deliver innovative solutions. And startups benefit from the credibility, scale, resources and regulatory compliance offered by established financial firms.
–PropTech: The next housing downturn may be less severe because of new proptech innovations that ensure more flexibility, faster transaction times and new paths to liquidity for homeowners. New innovations also offer alternative financing options based on analyzing new data sources and automated assistance building creditworthiness. Lastly, the increased availability of data and better algorithms offer earlier warning and potential buffers for lenders bracing for a financial downturn.
–Cybersecurity: There will be continued consolidation in the cybersecurity industry due to CISOs wanting to better manage their cyber teams with fewer vendors and alerts. Uniquely positioned cybersecurity startups that target newer or less competitive markets will fare better.
–IOT Deployments: According to Gartner, by 2022, more than 80% of enterprise IoT deployments will include an AI component, up from only 10% today. Large datasets from IoT deployments can be leveraged to train ML and enhance system performance to improve ROI. This will be particularly relevant in highly specialized use cases, further driving verticalization in the market.
–IOT Platforms: Legacy IoT software platforms offered by incumbents frequently steer customers to select specific cloud services, device manufacturers and connectivity providers. These limitations pose challenges to companies as they scale operations and expand internationally. In 2020, startup will gain market traction by building IoT platforms on microservice architectures to enhance interoperability. For example, IoT connectivity platforms will emerge to offer customers greater ability to connect deployments using a wide variety of signaling options (5G, LPWAN, etc.) across diverse geographies and providers.
Overall, we are sanguine about tech innovation in 2020, offering a diversity of opportunities for growth. That said, as new technology becomes more widely adopted, regulations with unintended consequences often emerge as well, so we’re intrigued and hope to see this balance tip toward innovation and away from over-regulation next year.
Looking beyond 2020, we asked some of our portfolio companies what they expect to be the most influential changes in technology over the next 5-10 years. Watch video.