Venture capital is a long game. Startups take many years to mature before venture capitalists can get a return on their investment. While you may think that VC investment is down during the economic downturn, this is only true in the short term, primarily because VCs are concerned with how their existing portfolio companies will make it through the crisis.
So, what trends will VCs be looking for, and what will they be avoiding in the coming months and years?
Some trends are obvious. The “sharing economy,” which powered companies like Uber and Airbnb and fueled quite a bit of venture investment and excitement in the last decade, seems to have reached its apex and is no longer in favor. And the likes of Zoom and remote conferencing has experienced a not-so-temporary boom during this crisis that is likely to continue long afterward.
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While predicting the future is never easy, here are a few tech trends that I believe will keep venture capitalists very busy in the months and years ahead as we emerge from this crisis.
Virtual Reality (VR), Augmented Reality (AR), Mixed Reality (XR)
Virtual reality was already making a comeback well before the coronavirus hit. As opposed to older headsets which required a PC or a smartphone to connect to use, stand-alone headsets such as the Oculus Quest were driving this resurgence. Another factor driving this resurgence is that companies were recognizing VR as a much better way to train employees.
People working at home during the pandemic has resulted in a resurgence of interest in VR content and VR startups. I predict this will drive more investors to look at ways to leverage VR headsets to do everything from watching movies to working and socializing.
For example, VirZoom is a VR company that lets you use exercise bikes at home and feel like you are in a virtual environment, racing against friends who are at home. Additionally, products that can be used to hold VR conferences are suddenly very popular, as more physical conferences continue to be cancelled, including concerts and other gatherings.
Consumer robots and autonomous delivery
It has been over 10 years since Google started its autonomous vehicle project (now called Waymo). GM and other car companies have made significant investments in the space and Tesla has been working on its own self-driving algorithms for some time.
However, with the decline of ride sharing services like Uber and Lyft due to the virus, I believe there will be a second wave of autonomous companies funded, especially those that are self-cleaning and can navigate to people’s houses without needing drivers.
While many delivery services like DoorDash and UberEats now promise “contactless” delivery, automated robots that drive and deliver to your home will still be preferred over these contactless services. Amazon has been making noise about drone-based package delivery, though right now the biggest hurdles are more regulatory.
While we still haven’t seen anything like Rosie, the robot housecleaner from the Jetsons, a new wave of consumer robots and autonomous delivery startups funded over the next few years might just get us there!
Next generation conferencing and remote working
While Zoom usage has soared (as have competitors like GoToMeeting and WebEx) while everyone works from home, many tech companies like Google, Facebook and Twitter will allow workers to continue working at home for many months or in some cases, forever. This will require more tools than just Slack and Zoom, and many startups will be founded in order to provide next generation meeting and remote working services.
This technology could go well beyond virtual meetings to include conferences and other types of events. There are also companies like RemoteHQ that allow remote workers to feel like they are in the same office. With shared versions of apps like browsers, whiteboards and more, they are likely just the first of many startups that will make a mark in the remote working space.
One aspect of working remotely that deserves its own callout is cybersecurity. While many tech companies are used to collaborating with off-shore offices, remote work introduces a whole new level of security problems for IT departments.
These models became the dominant form of software after the last downturn. One benefit for investors and software companies was that although it took longer for a SaaS company to build up its revenue, the recurring nature of the transaction made the revenue and cash flow much more predictable and annualized recurring revenue became the preferred way to measure software companies’ performance.
Any company whose revenue is not subscription-based is likely seeing many sales decisions and budgets put off, with revenue swinging wildly during this crisis. SaaS companies that have already worked their way into enterprises and have a low churn rate are likely to become even more popular.
As a result, I think that more VCs will start to look for enterprise SaaS models rather than funding the next consumer app or social media platform.
Games have proven to be recession-proof, and revenue has not been hit significantly during this downturn.
With the introduction of new casual gaming platforms and companies like Zynga, ngmoco (sold to GREE for $400 million), King (makers of Candy Crush, now sold to Activision), Niantic (makers of Pokemon Go) and many others, incredible returns were made by VCs over the first part of the last decade.
Eventually, the industry matured and costs went up once again and only a small number of VCs still invest in gaming. However, I predict that as new platforms rise for casual gaming during and after this downturn, mainstream VCs will look at gaming again because of its recession-proof nature.
Historically, the period just after a downturn, while being a tough one for entrepreneurs, has often produced many great companies. Professional investors recognize this and while they are busy shoring up their existing portfolio companies during the downturn, most VCs I know are also keeping a lookout for new investments.
These are of course, just some of the trends that I think will interest venture capitalists and strategic investors during and after the pandemic. Sometimes, a downturn is the mother of necessity that creates entirely new industries. Venture capitalists in Silicon Valley and beyond are already looking for next wave of entrepreneurs to fund.