With the underperformance of IPOs like Uber and Lyft as well as the epic implosion of WeWork, the venture capital market has softened a bit. But then again, this year should still be quite robust—with over $100 billion in investments across more than 10,000 deals, according to estimates from PitchBook.
So then what can we expect for 2020? Will things tighten up? And what are some of the attractive categories that VCs will target?
Here’s a look:
Ben Narasin, Venture Partner at NEA:
“In 2019, WeWork revealed the worst outcomes of lax corporate governance and the market appropriately punished them for doing so. Investors occasionally need to be flexible around terms in order to win the most exciting deals, but the growing discomfort many have felt over the last couple of years has solidified in the wake of very real negative consequences. In 2020, investors will require firmer governance and oversight structures to safeguard against negative impact and ensure these protections are mandated in their term sheets in a normal, plain vanilla manner that has been common over the history of the corporate form.”
Brian Hirsch, the Co-Founder and Managing Partner at Tribeca Venture Partners:
“The IPO market will slow down considerably but will be replaced by a surge in M&A as strategics find pricing to be more reasonable. As public equity investors have begun to shun startups without a clear path to profitability, those startups will turn to strategics for exits. When this occurs, price expectations will decline and come more in line with expectations of strategics that have struggled over the last few years to match public market tech multiples. The record amounts of cash sitting on corporate balance sheets will finally be put to work.”
Alex Niehenke, partner at Scale Venture Partners:
“We’ll see more action in public market and unicorn land: Airbnb’s IPO is hotly anticipated and won’t disappoint. But more interestingly I predict we’ll see another couple ‘surprises’ from business software focused companies like we did in 2019 with Zoom and Datadog. That is, super cash efficient, hyper growth companies operating at significant scale that garner significant public market premiums. I also believe we’ll see another big flame out, while the significance of WeWork is hard to replicate, the tide will turn on at least one hyper-burn, growth-at-all-cost company as funding sources look to reduce risk.”
Matt Murphy, managing partner at Menlo Ventures:
“The market will accelerate to a barbell strategy of firms clustering at Series A and late stage growth, the latter defined as rounds above $50M capital raised. The sweet spot of growth used to be $25-35M rounds and is now $50-100M. The rise of large global growth funds from traditional venture firms will amplify this trend. Series B and C will get harder unless metrics are near perfect.”
Tae Hea, the co-founding Managing Director of Storm Ventures and author of Survival to Thrival: Change or be Changed:
“Next year we will see an explosion of SaaS B2B startups leveraging AI to help businesses get a competitive edge in the new data economy. Amazon and Google’s biggest revenue stream is now their web service offerings, and this is because they have years of data about their customers, whether through search habits, the posts they share, the products they buy, or the music they listen to. They were the first to turn data into a competitive advantage in what is now known as the Data Economy. Depending on what a business wants to achieve—high store foot prints, more sales, increased market awareness—their data has to come from multiple sources so that more in-depth conclusions can be drawn from it. For example, you not only need to know how many people visited the store, but also at what time. Not just how many sales, but who too, and which touch points you had with your customer before they transacted with you, which adverts they were shown and where all the interactions occurred.”
Tyler Jewell, managing director at Dell Technologies Capital:
“The overwhelming interest and rapid adoption of Kubernetes as an orchestration platform has pushed microservices complexity right into the hands of developers. 2020 is the year where the developer industry settles on the best architecture for designing and building cloud-native applications–large systems of scale with state that operate on-demand and elastically. The strong interest in service mesh to simplify how microservices talk to each other is table stakes. Serverless is an approach that eliminates and hides all architecture decisions away from developers. Reactive architecture is emerging as a set of proven design principles for building stateful cloud apps. 2020 is the year where the developer standards, frameworks, and businesses around service mesh + reactive + serverless begin to coalesce to chart a path that works for all developers writing in any programming language in any cloud.”
Ramneek Gupta, Managing Director & Co-Head of Venture Investing at Citi Ventures:
“Machine learning is unique in that it gets better at making predictions and personalizing experiences as more consumer data becomes available. However, companies need to consider data privacy and security as machine learning continues to evolve.
“Machine learning at the edge, where machine learning models are purposefully designed to be run on consumer devices (as opposed to the cloud), will allow companies to create personalized experiences while adhering to strict privacy requirements because data never leaves the consumer’s devices. Personalization has continued to be a critical factor in a successful business model, and as we head into 2020, machine learning at the edge is a tool that will allow companies and customers to balance information sharing with user privacy.”
Sunil Kurkure, Managing Director at Intel Capital:
“Companies that are using technology to address legislation like the CCPA and pressing consumer privacy trends will be at the forefront of 2020.”
Michael Proman, Managing Director at Scrum Ventures:
“While the majority of venture investments have historically come out of Massachusetts, New York and California, there will be a greater emphasis from top-tier VCs on secondary startup markets (especially the Midwest— i.e., Chicago, Minneapolis, Kansas City, Madison, Detroit, Indianapolis, Nashville, etc) as operational (SG&A) costs within coastal markets continue to skyrocket.”
Arjun Chopra, partner at Floodgate:
“The promise of quantum computing is undeniable. Google recently announced it used quantum computing to identify the outputs of a random number generator–a feat it achieved in under four minutes. While the veracity of their claims have been challenged because getting a stable QC to do ‘real work’ has proven to be elusive, this feat is no mean one. If the same task was to be done by a supercomputer, it would take 10,000 years to complete! While we are still in the dark days of QC, a lot of nations have thrown their heft (and their checkbooks) into this ‘race.’ China, Japan and the US are all vying for dominance, and we should expect to continue to see more progress in this field in 2020 and beyond.”
Gen Tsuchikawa, CEO and Chief Investment Officer of the Sony Innovation Fund:
“As 2020 gears up to be “year 1” for massive roll-outs of 5G networks in US, EU and APAC, this will raise an interesting set of challenges for start-ups as 5G will require a structural overhaul of the technology stack above the wireless link alone. Similar to how the datacenter became a software battleground and spurred a whole new breed of start-ups on this new fabric (e.g. containers, DevOps), 5G opens up a nearly blank slate for start-ups to truly innovate for delivering the promises of 5G to the many connected vehicles, venues and sensors.”
Tom (@ttaulli) is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction.