This time last year, no one could have predicted how 2020 would have panned out. From the pandemic changing our everyday lives and accelerating digitalization to a historic stock market run, last year brought a lot of surprises and change to the VC and tech ecosystems.
Looking ahead to 2021, I expect to see continued evolution in the VC industry as tech becomes a more integral part of our lives and a key driver of economic growth across the globe.
Below are a few of my predictions.
Start-up investing goes mainstream
Investing in a start-up is the new “owning a BMW.” It’s a status symbol, and it’s easy to access. Everybody can do it, and with the public markets already overheated and a stream of recent high-profile IPOs like Airbnb, it will “make sense” to invest in an app you love.
The next wave of VC is about specialization
The last decade saw the prominence of VC “platforms” with mega-funds and multi-stage funds investing in every stage and every sector. With so much capital available for entrepreneurs – from individuals turned seed investors to PE firms starting venture practices – the market has ever more options and, thus, investors need to stand out.
Investors will specialize and mega-funds with their broad investment areas will have trouble attracting great entrepreneurs because those entrepreneurs would rather work with investors who have deep knowledge in their segment and stage. By focusing narrowly, investors can also offer higher levels of service – think of value-add services like recruiting and go-to-market help – because they can aggregate those services across companies operating in similar segments at similar sizes.
More VCs will implement ‘playbooks’
Working off the successful model of Vista Equity Partners – which purchases VC-backed software companies that the firm then builds up or scales – venture capitalists will start to apply similar programs to their own “playbooks.”
For example, there is our own Shasta Elevate program, which helps enterprise SaaS companies implement the programs to scale their sales and marketing from $1 million to $10 million ARR. This, too, is made possible by specialization because a playbook and a method to implement it can be best applied to a similar cohort of companies.
The new presidency won’t matter at all
Red or blue, straightforward results or extended legal battle, the election will affect the tech industry and broader economy the way Game of Thrones did: everyone will talk about it, but it won’t change their decisions. The factors that are driving societal change and technology adoption are more about the pandemic fallout, overall technology advancement and remote work trends.
Synthetic biology will make a difference
For years, synthetic biology was a set of technologies in search of a market, but it is now racking up wins. Previously, it was about lab meats, such as the Impossible Burger going mainstream, but the next developments will come for instant diagnostic tests (such as for covid).
Starting with the first vaccines to market for SARS-CoV-2, these gene-editing technologies will bring a wave of incredible therapeutics, but first we will see the technology get proven out in diagnostics since it has a lower risk profile.
Machine learning boot camps will become commonplace
Like web technology became the backbone of business, machine learning (ML) is the technology behind most artificial intelligence breakthroughs of late, and it will be an ingredient in every innovation of this decade. Engineers will need to add this to their skills and investors will learn terminology, techniques and differentiation as it pertains to gaining an edge.
You don’t need to be an engineer or understand how this stuff works, just like you didn’t need to understand the backend of the web or learn Java, but it will be important to understand what machine learning can do and how that might impact every business.
AR is for work not play
Look for Apple’s headset to be widely panned as a consumer utility (what are we supposed to do with these dorky things except play Avengers Go?), but the concept can be incredibly useful in manufacturing, logistics, military and medicine.
Visions of AR need to shift from what we see in the movies (full profile of a person when you look at them) to much more boring, but useful, applications helping humans remember the next step in a procedure. Imagine your Amazon driver can look up the street and see, through the windshield, an arrow pointing to the house that gets the next package. Now they can work more efficiently and deliver 220 packages a day, up from 200. A 10 percent improvement across a trillion-dollar company is meaningful.
Enterprise SaaS = the picks and shovels of this gold rush
Behind the transformation happening in modern business is a stack of software as a service. Whether mining the latest entertainment trends or prospecting innovative financial offerings, the tools everyone uses are software as a service.
Investors have noticed these companies racking up hundreds of millions of dollars in annual recurring revenue, selling very sticky software at high margins and being rewarded with incredible market caps. Artificial intelligence, synthetic biology, robotics, space and transformations in media and politics, all of these trends will drive even more need for these new software tools. Investors who understand how these tools are used stand to strike it rich.
Issac Roth is a partner at Shasta Ventures, where he invests in enterprise software companies and currently manages investments in CodeFresh, Scalyr, Beautiful.ai, Quartz.co and other unannounced start-ups. He tweets at @ijroth.