“Someone’s sitting in the shade today because someone planted a tree a long time ago.”?—?Warren Buffett
In my previous post, I covered 5 tech trends that shaped 2017 including the proliferation of AI, Blockchain and crypto currencies the growing dominance of GAFAM, etc. Below, I cover the trends that dominated the headlines in 2017.
1. Tech code of conduct
Not a month went by since April 2017 without a major allegation of sexual misconduct story breaking in tech, entertainment and venture capital. Allegations have been made (and were admitted by) at least 38 men in the industry including Dave McLure, Jason Caldbeck, Steve Juverston, Shervin Pishevar and others. The growing list of cases can sadly be found here.
It has taken considerable courage from the victims to step forward and slowly but surely it’s ridding the industry from these abusive, repulsive behaviours. The revelations steered public debate and a backlash against the ‘tech bros’ culture of Silicon Valley.
Meanwhile at Google, an engineer’s ‘manifesto’ (a.k.a rant) caused a diversity uproar as he claimed that women are less suited than men to work in tech. He was quickly fired for violating the Google code of conduct.
The positive outcome of this trend is the need/desire to apply a stronger code of conduct in startups and funds and increase the diversity of partners at venture capital firms.
2. Fake news
The US elections brought Fake News into the mainstream and with it, an understanding that we can be easily manipulated as people.
Several of the major tech companies have taken some steps to remedy the situation mainly around fact checking by Google, and Facebook putting more controls around political ads and transparency of the advertisers behind it.
These new measures to control use of the platforms are challenging for the tech giants as they are burdensome and not failure proof.
3. The Early Stage Slump
More of a recent meme, but it seems to have caught on. While there’s more money flowing into venture capital than ever, it seems to be getting harder for founders to raise those first cheques. Fred Wilson’s post on early stage fundraising for startups was widely shared and reminded me of “R.I.P Good times” presentation by Sequoia in 2008 as a ‘moment’ in tech.
The data is pretty clear. The seed and early stage investing market has cooled substantially in the past few years.
Low interest rates, relatively little liquidity (in terms of IPOs but also slower pace of acquisitions and smaller tickets by Tech giants), have meant that it’s getting harder to raise the early stage rounds, and those who succeed, will have to do so on a lower valuation. That’s probably a good thing for the industry, and Fred explains why:
For entrepreneurs just starting out, it will be tougher to raise your first rounds. That is how it always has been so it is a return to normal. It is not great news, but it is the reality. If you price your seed round appropriately and have a good team and plan, you can raise money. But it will be harder.
For investors, it means seed rounds are going to be the place to be. When others leave the market, it is time to get in. The uncapped note will turn into a priced $1mm round at $4mm pre/$5mm post. This is as it should be. The risks of seed investing are so significant that the valuations need to be reasonable. When you lose on 60–80% of your investments, you really need the ability to make 10–20x on your winners. And getting the entry pricing right is part of how that happens.
This is partially a signal to investors: be the change you want to see in the industry.
4. Tech IPOs are back
The companies that rung the bell at Nasdaq in 2017 broke what seemed to be a dry spell in tech IPOs.
While most performed well including Stitch Fix, Okta and MongoDB, but others like Snap and Blue Apron, have taken a beating in the market. We didn’t see Uber, Slack or AirBnb on Wall Street yet?—?perhaps the liquidity that those exits would provide is what’s going to reverse the seed slump.
5. The rise of Corporate Ventures capital (and the Softbank phenomenon)
Let’s take the latest KPMG Venture Pulse report, in Q3 2017 2,672 deals raised a total of $39.4 billion globally. 18% of those dollars were invested by corporates. From the Fortune 500, 30% already invest in startups or have a venture program. On the Fortune 100, it’s 50%.
Corporates understand that entire industries are being disrupted by software (and now more specifically machine learning and AI), and that they need to invest to survive and thrive, not only as a strategic priority (access to technology, etc) but also from a financial returns perspective. Think about Yahoo and their Tencent stake at the time?—?how much did it contribute to its value?
Some call CVCs ‘tourist capital’, as in the past cycle, corporates who actively started investing, pulled out of investing when the corporates took a hit in the markets, in many cases damaging the startups they’ve invested by ‘orphaning’ them. This time however, many believe it’s different. Challenges remain around incentives (financial vs. strategic), but it seems like CVCs are here to stay.
The most ambitious corporate backed VC model this year is the Softbank Vision fund. With $100 billion (or close) under management, Masayoshi Son has been making bold bets into what they perceive as the category winners worldwide, deploying $100+ million and more cheques into small and big companies globally. Investments include Nvidia, WeWork, Slack, Oyo and very soon, Uber. CNN has a good tracker.
Softbank’s CEO wants to raise life expectancy to 200 years, and believes that AI and robotics will change our lives and that prices are not high?—?this is just the beginning, he said.
In the next post, I’ll make my predictions for the trends that will dominate in 2018. Hindsight is 20–20, so take a look at what the roundup of VC predictions that I published in January.
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