The Emerging Markets
How we should visualize this and the next decade
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I had the chance a few weeks ago (before the WhatsApp $19B craze) to discuss with the Sequoia Capital Scout folks on emerging market trends and what investors should have their eyes peeled out for now and within the next decade. Investors are discovering new, promising markets, many of which are threatening the existence of old, traditional business practices subject to said technological disruptions (Aileen Lee, Partner at KPCB & Founder of Cowboy Ventures, calls this “Life 2.0”). This new era of innovation is transforming how we run about our lives, and, if not inventing new markets, is pushing away categories that rely on risk-aversed, cultured or family-run systems (see Joe Lonsdale & Zac Bookman’s piece on: “The Coming Formation” by Formation 8).
As a start, let’s take a look back at Aileen Lee’s article on Billion Dollar Unicorns. The super-Unicorn (a term representing a young company who’s valuation is somewhat north of ~>$100B) of the pre-50s was: HP, and birth of electronic tools. The 60s: Intel, famed for the invention of the semiconductor chip. The 70s: Oracle for enterprise, and Apple & Microsoft for building the first desktop computers. The 80s: Cisco & AOL, and the rise of the telecom space. The 90s: Google & Amazon, and the age of online information & eruption of an E-commerce industry. And finally, the 00s: Facebook, and the birth of social media. In the aftermath of the dot-com crash, a new age of technological innovation began to position itself — an inflection point that was coined under the moniker “Web 2.0.” This begs the question: what’s going to be the super-Unicorn of this decade?
With my data, I ranked the top business model categories in ascending order of total funding rounds. The chart, however, only consists of data ranging from 2010 to 2014 YTD, because we’re only concerned with our current decade’s trends. The total rounds of funding, though, is skewed towards companies like E-commerce or Biotech that naturally requires more private capital to build a proper starting momentum. Thus it’s not appropriate to analyze only from this data. But from a birds-eye view, it’s apparent that software, web, mobile and other consumer spaces are active. In other categories, however, there’s a growing trend for enterprise, security, product-based and other companies, providing healthy signs for new opportunities within new markets.
Last month I wrote a post on “Rising Unicorns”, comparing billion dollar companies with Aileen Lee’s TechCrunch list within the past decade. This time, I’ll be covering different emerging markets that I believe could potentially disrupt the current and next decade. We’ve obviously seen the new age of smartphone apps disrupting technology, i.e. from the Instagram acquisition to the Snapchat phenomena (and most recently WhatsApp’s $19B). Yet, there really hasn’t been a defining super-unicorn of our decade. Perhaps there are lesser known markets that have already produced billion dollar companies, that might house our world’s next titan company.
Of the many emerging markets, here’re a few I believe are worth discussing, followed by several prime examples of rising, venture-backed startups that are in those categories.
I. The Enterprise Space (+ Big Data)
Of all spaces, Enterprise is considered one of the fastest, most profitable growing markets after consumer business models. Enterprise solutions like Palantir, Addepar, and Tableau Software as well as Business Intelligence (BI) platforms like Birst, Looker, App Annie, and other analytic tracking tools are prime examples of successful enterprises. Tons of private capital are pouring into enterprise software, and is already becoming crowded with overly anticipated and hyped capital returns — take a look at Sequoia Capital’s Jim Goetz, GP on “Building more for the Enterprise”. A friend of mine—Anjney Midha — now Partner @KPCB also pointed out the success factors of Enterprise softwares.
A common theme presented throughout much of Palantir, Formation 8 & Addepar founder Joe Lonsdale’s public speaking and written work is the notion of the “Smart Enterprise”. Joe has coined that term to describe “the companies leading the 6th wave of Innovation occurring in Silicon Valley.” Below is his image of the different waves of innovation throughout the past few decades, similar to the super-unicorns note presented by Aileen:
Enterprise business models have also garnered an incredible amount of attraction, as they’ve processed less private capital and generated higher value returns. As Aileen Lee mentioned in her TC Unicorn Club article:
“… enterprise-oriented unicorns have become worth more on average, and raised much less private capital, delivering a higher return on private investment.”
However, enterprise services don’t necessarily have to have B2B functions like Palantir, but could for example connect consumers with businesses and enterprise solutions, or incorporate Big Data (refer to Drew Oetting & Joe’s excerpt on “The Conventionalization of ‘Big Data’”). It could also involve decentralizing things, for example: currency, government, finance, and so on. The term “enterprise” is so broad that it is more useful to break it down to subsets of other business model classes.
I.A. Decentralizing Government
Government is an interesting space, and there can be various places to focus on. I met up with Tim Hwang from Princeton who’s founder of FiscalNote— an enterprise company that provides real-time predictive analytics of government legislations. For example, if a politician or institution would like to know whether a particular bill has passed the Senate or Congress, he or she can use FiscalNote to determine that particular bill’s current standing. The company is currently backed by First Round Capital’s Dorm Room Fund, NEA, Mark Cuban & Jerry Yang’s AME Cloud Ventures—it was also brought up during my Sequoia Scout conference.
What FiscalNote brings to the table is government transparency. Palantir Government, on the other hand, assists the government by providing for example real-time military analytics and strategic guidance, and was rumored to even help assassinate Osama Bin Laden. Other companies similar in conduct and vision will soon be able to provide a new, unorthodox solution, and it’s only a matter of time before we see the next government technology disruption.
I.B. Reinventing Finance
Even the way we imagine buying and selling stocks is being renovated by a product called Robinhood, a venture-backed, retail brokerage platform. Still currently under invite session only, Robinhood aims to gain an advantage over traditional stock brokerage firms like Schwab, E-Trade, and Fidelity by allowing consumers to buy and sell stocks on their smartphones. The catch: it’s free. Robinhood charges 0% commission, has a $0 minimum deposit option, and follows a freemium pathway model.
How the finance sectors are shifting subject to technological change is a field to be aware of. Technology will change how traditional financial instruments operate and flow; banks, asset management conglomerates, wealth management firms, currency distribution & allocation, and other common financial practices will transform. For example, Wealthfront is reinventing the way we can make sophisticated investments using their algorithms to manage prices affordable for everyone. Addepar, the wealth management platform built by Joe Lonsdale, is competing against customary platforms like Advent software and Black Diamond with the end goal of increasing wealth management transparency and efficiency.
These companies are canceling old, conventional, long-established financial practices and setting up new business standards through technology.
I.C. Rethinking Agriculture & Farming
There’s lots of room for innovation in this sector, especially in how we can improve farming and provide real-time analytics to improve agriculture. I help out with Cowboy Ventures, and one of its Partners was the Director of Business Development at The Climate Corporation (formerly WeatherBill). The company helps people and businesses manage and adapt to climate change, unique for its platform that enables real-time pricing and purchasing of customizable weather insurance.
“The company protects the $3 trillion global agriculture industry from the financial impact of adverse weather “the cause of over 90% of crop loss” with fully automated weather insurance products. Unlike traditional insurance, The Climate Corporation’s products pay out automatically based solely on measured weather conditions, requiring no claims process and no waiting for payment.”
— Description on Crunchbase
This successful company was recently acquired by Monsanto — a publicly traded agricultural biotechnology company — for $930M. This spurs for new attention in this field, and a renewed need for building more ideas in agriculture using tech.
Recently Forbes wrote a thought-intensive article on “Top VCs Predict Where They’ll Invest Their Money In 2014”, interviewing reputable firms and their Partners, discussing where they predict future investments will be at. Michael Abbott from KPCB mentioned:
“Wearable devices will rule. [This] extends from the meme of hardware is going through its own revolution like software has done (and is doing). Ephemeral content will rule. Secure messaging will continue to thrive as a result. Who wants certain content to live forever online? But passwords will die. How many passwords do you have? Are they strong enough?”
—Michael Abbott, KP
Michael emphasizes secure messaging, mentioning “..who wants certain content to live forever online?” This brings up the topic of ephemerals, which solves a major problem: content security.
II. Ephemerality (& Content Security):
Zuckerberg called Snapchat a “Privacy Phenomenon” and that it started the wave of ideas around disappearing content. Snapchat is opening the door for other similar motives as simple as disappearing texts, videos, music, and even apps.
Confide, a text-disappearing messaging app, raised over $1.9M in funding from Google Ventures, FRC, and SVAngel, among others. The startup is a social messaging platform competing in the same social market as MessageMe, Line, Whatsapp, WeChat, and KakaoTalk, but that it doesn’t store your messages. As mentioned on their Crunchbase blurp:
“Spoken words disappear after they’re heard. But what you say online remains forever. With confidential messages that self-destruct, Confide takes you off the record.”
— Description on Crunchbase
There’s also a great post here on Flappy Bird begging the question: what if apps were ephemeral too? Would that mean apps are forced to virality in a short period of time to maximize their user base and gain as much traction as possible? The conditions set by disappearing apps is definitely interesting, and could possibly set some new standards for future ideas.
Ephemerality, after all, is one of the newest business model concepts, but is definitely a category to watch out for. Take a look at this article that discusses The Rise of the Ephemeralnet.
III. Wearable Devices:
With the newly freshened hype of the Google Glass and the rumored Apple & Google watches, the wearables space is reigniting investors’ hopes for lucrative returns. It’s so hyped that Google Ventures, Kleiner Perkins, and Andreessen Horowitz even Teamed Up As “Glass Collective” to invest in the Google Glass ecosystem.
Intel Capital, like other corporate venture capitals, is on the rise for being one of the largest firms to heavily concentrate their efforts in the wearables space. I had the chance to speak with a Managing Director / Partner from ICap to discuss about this area. The President of Intel Capital Arvind Sodhani mentioned the venture arm’s current investments on several companies like Recon Instruments — a Canadian company that builds heads-up display technology for sports and activity-specific environments including skiing or snowboarding. Sotera is another that builds wearable medical devices (i.e. one strapped to your wrist) to improve patient safety by “empowering clinicians to detect early signs of deterioration in virtually any care setting and enable early intervention and rapid response, all without limiting the patient’s freedom of movement.”
Of course, there’s also the new craze for athletic fitness wear, including Fitbit, Jawbone’s UP24 connected to the UP 3.0 app, and the Nike+ FuelBand (SE). Recently, however, there’s been a kickstarter campaign for a product called The Dash — a wireless smart-in-ear headphones that can store 1000 songs, track performance, store body metrics, and more. The campaign is currently so popular that though it had a minimum pledge of $260K, it already surpassed its goal almost 9 times over with a phenomenal standing of ~$2M backed by ~9,500 people thus far.
As TechCrunch puts it:
“We’re finally starting to see some real consolidation around wearable tech, and Kickstarter project The Dash is a great example of that trend in action.” –TC
Others:
Massive online open courses (MOOCs) will always remain as something to be on the watch for. Coursera, the for-profit educational technology company founded by Stanford CS professors, is a prime example. Coursera, among others like Khan Academy, Udacity, Starter League, and Codecademy will remain as proof of online education disruption. Technology is reinventing the way students learn and study, sometimes even making it more affordable through places like Inkling.
The Healthcare space will likewise continue to innovate and therefore thrive as it more and more becomes easily accessible to people. HealthTap, for example, is making it easier for millions around the world to be connected to trusted health information and Doctors. “As a pioneer in the new field of interactive health, HealthTap is helping people find the best care and make better decisions about their health and well-being.”
Other areas not covered in depth include crypto-currency, 3D printing & rapid-prototyping tools, biotech, cleantech, local services, drones (check this out), as well as specific enterprise categories like PAAS and IAAS. They’re all likewise equally promising markets, but due to my limited knowledge in these fields I chose not to cover them.
Investors are putting more time into sourcing and investing in areas that will not only produce large billion-dollar returns, but are also innovative enough to either cancel the “old ways” or bring about a completely new innovative perspective, i.e. Snapchat’s “privacy phenomenon”. Like startups, there are hundreds of venture funds, but only a few are able to evolve into one of the extremely rare unicorn VCs.
Mobile seems to be this decade’s newest and biggest market, and is slowly becoming saturated over time. Yet there hasn’t been that one super-unicorn that’s been born in that space that could rival Facebook, Oracle or Apple. Might another space instead of mobile give rise to tech’s newest super-unicorn, or will we just have to be more patient?
This is the role of venture capitalists — predicting the future. Top venture titans like Peter Thiel, Joe Lonsdale, Marc Andreessen, Reid Hoffman, Ben Horowitz, Michael Moritz and John Doerr must predict the next 7-9 years, and wonder whether the startup they just poured $2.9M in will evolve into a stunning unicorn. Investors will just have to be patient and smart with their decisions.
That being said, could we also assume that the next decade’s fastest emerging market be either one of the above mentioned spaces like wearables, ephemerals or smart enterprises?
We’ll just have to wait and see.
Footnotes:
- All was done on personal/individual research.
- The article is meant to provide a holistic view of most emerging markets. This does not necessarily mean it’ll cover every major emerging space.
- All research was based on data pulled on February 12, 2014 — numbers may have changed since.
I’m currently a Stanford CS ‘15 student. For questions, feedback or corrections, ping me at hi@danielcliem.com or visit me at www.danielcliem.com.
Thanks for reading.
