Year in review - S2020/E1.000.001: Predicting the past, present, or future?
We hear a lot about Venture Capitalists trying to predict the future, maybe even 10 years ahead. However, this is not fully accurate. Venture Capitalists are focusing on recognizing the future before everybody else. This is a slight, but distinctive and important difference. The word recognize acknowledges that the future is already here (likely coined by famous cyberpunk writer William Gibson), but not obvious to everybody. This is a much more accurate description of what most (not all) VCs are trying to do. We all look for the fit of a product and/or a founder with a market, which implies that the market is already existing in some shape or form. Also, the time horizon for an investment is not really 10 years - this is merely that standard VC fund cycle and a timeframe we expect our companies to mature to a significant size where they don’t need the support of their investor parents anymore and can thrive on their own. The real timeframe we are all trying to predict is the next 3 years when we expect significant growth of the technologies and products we invest in. However, arguably for somebody to succeed doing this, she would have to have at least a vision of what the future beyond this will look like.
What we can learn from pre-2020 travel market predictions
The future is defined by what happened in the past - seldomly we see step-changes in innovation due to paradigm shifts, black swan events like the 2007/08 financial crisis or a global pandemic like we have seen in 2019/20. Most of the time, our predictions will be based on developments and patterns we have seen happening in the past, but sometimes surprises happen that only very few people predicted and that can change the future significantly.
In summary, VCs need a vision of the future and of course, can be wrong - in fact, we appreciate being wrong because this gives us the opportunity to learn and hopefully make better predictions in the future. And sometimes something just happens and the majority of us will be wrong - just ask all those people that relied on market studies for the travel industry.
Agree to disagree
In our team, we often discuss how we see the future and what “the next big thing” will be and there are usually very different and opposing opinions. That’s great, as we believe that from the discussion driven by this diversity in opinions, we make better investment decisions in the end. Not everyone on the team agrees immediately when discussing a potential investment for the first time. However, after a strong debate, we usually end up with a thesis that everyone supports.
3VC predictions for 2021
And since a new year is just around the corner and you cannot turn on any media anymore without seeing the year in review in a million different formats, we are going to look ahead and give you a glimpse of what we think 2021 has in store. Here’s a selection of our team members’ strongest beliefs of what will happen in 2021!
1. Someone will finally take care of consumers’ privacy
2018 saw the implementation of GDPR in Europe and the signing of CCPA in California. Arguably the strictest data privacy regulations globally. Since then, we have seen many startups emerging that are building on the increasing regulations, but also on the increasing distrust and discontent of consumers with how companies deal with their private data. Some of the startups in this space we have seen are saymine, dilecy, deseat.me, usercentrics, bitsabout.me, digi.me, datum. We see this trend continuing in 2021 and we hope to see unprecedented demand from consumers for privacy and personal data management. And this totally makes sense, because otherwise, the bad guys will take care of the data.
2. Location will become less important AND more important
If you could call 2020 by a name, it would most likely be distance. We learned how to say hello without touching each other, we kept our distances wherever we went, schools and universities digitized in record time and companies were forced to experiment with working-from-home models, while startups that have started fully remote have seen increasing interest in their models, and some startups like OysterHR, remote.com and lano.io started helping companies manage remote workforces. On the other side, all this distancing also makes us long for more close social interactions and strengthening of local communities. We predict for 2021 that the world becomes more remote and at the same time more local (again):
Great companies can be built everywhere and great people can be employed anywhere. We will continue to see new platforms, tools, and services enabling this geographic democratization and new kinds of location-free companies (we would call roamers).
On the other hand, location will become more important to source from local goods and services, reduce the CO2 footprint, and focus on your local communities. We’ll see a rise of hyperlocal communities and market places.
3. After COVID we have to act on sustainability again
With most of the focus in 2020 on COVID, the discussion about the health of our planet moved to the background. After taking center stage in 2018/19 movements like Fridays for Future and Extinction Rebellion were forced to demonstrate virtually and arguably lost momentum and also the focus of politicians was more on the immediate felt impacts of a global health pandemic than the longer-term impacts of a global climate crisis.
While many of us have reconsidered their actions and we may see a lasting effect from glocalization, there will still be a lot to do towards a sustainable future. Many great startups and initiatives have been started in 2019/20 addressing resource shortage and enabling more sustainable operations and lifestyle, such as Leaders For Climate Action , envelio, tibber, legendary vish, plan a, planetly, refurbed, tomorrow or total ctrl.
While all these initiatives are great and needed, many of them are still in the concept/starting-up phase. We predict that in 2021 there is a desire to move towards "implementation" after the phase of "figuring it out". We also see a bunch of investors and hence startups starting to act on that, others will follow.
4. Think you have seen it all? Think again! Valuations for the best European startups climbing to record highs.
From most investor’s point of view, 2020 was likely a pretty good year. While extremely volatile and a hell of a ride, stock markets climbed to record highs and we are seeing the first company ever being worth over $2 trillion! We have also witnessed a bumper year for companies going public in the US with Airbnb being the latest example of many successful exits driving outsized returns for some investors. More and more of these liquidity events are via alternative routes like direct listings or SPACs and after the 2020 successes, we will see more of those going forward. In Europe as well as the US, VCs have poured record amounts of investments into startups and also raised record amounts of funds themselves which will have to be deployed during the next 3-4 years. But not only the locals have realized the potential (and cost-effectiveness) of European tech talent, also the tourists from across the pond have realized it and some are even moving the family. The problem for the locals: Tourists are paying prices, locals never would. Despite all the problems some industries and companies had in 2020, valuations have been up across the board and with so much dry powder and increased competition. We predict that in 2021 valuations for the best European startups will reach another high. Be aware European VCs - a lot of those valuations will (as often is the case) be driven by Fomo.