Clear your mind for the next few minutes and lets recap what just happened over the last 365 days.
It has been an interesting year for startups and the investment world — not bad, but just unique. This isn’t nothing new though because just as startups should be disrupting their industries (we hope), investors have had to adapt, keep up and adjust based on their needs, as well as invest based on the current state of the economy and how that will affect potential exits.
Read this Barron’s article from March 20, 2000 that was the so called needle – Burning Up
Basically, the bubble was when people who couldn’t afford to lose money invested in these amazing public companies and when they went belly-up, they lost their money and it changed their lives. Investors on the other hand, lost a lot of money (a few made a lot), but their lives didn’t change as significantly. It seems like we have definitely learned from our mistakes and won’t allow this to happen again, which seems to be where we currently are right now. Lets also note that in 2000 the US GDP was $10.28T and as of 2013 it’s at 16.77T.
So where do we go from here? As the poet 50 Cent once said “To know where your headed you gotta know where you been,” so lets do a quick recap:
- Ad tech investments are pretty much over until the unicorns like AppNexus IPO and the four that IPOed somehow make a comeback.
- Ad blockers aren’t helping the cause (and will lose them $5B+ rev), but is also affecting the media industry. They love to brag about their amazing impressions, but how does that turn into revenue?
- 3D printing was great when Makerbot was acquired, but then we realized we have pretty much no sustainable consumer use for it. Oh, and then it was commoditized by funding campaigns that never produced (pun!). It’s not even 3D printing anyways, it’s just layers of 2D
- Bitcoin prices spiked, then imploded. Everyone finally realized that they actually have no idea what they do/are. I have a vague understanding of it, but hope their security technology can help make certain things more secure.
- We learned that people love to cook when everything is measured out and portioned for you.
- Virtual/Augmented Reality became a household name, but not a product.
- Equity crowdfunding through the JOBS Act was passed towards the end of the year even though Angel List, the leader in the space, makes the statement “As always, expect to lose your money when seed investing” on their website.
- We also learned that every personal responsibility, and things your mom used to do for you, can be outsourced as well.
- People apparently like to wear gadgets on their hands as the successful Fitbit IPO showed us. I do wear an Apple Watch.
- Drones took off but haven’t landed yet.
- Mega-mergers of the top companies in every industry. Alcohol, chemical, tech, beds, food etc
- Draftkings and Fanduel commercials basically spammed us and was taken to court
- The gig economy is ‘employing’ countless people who don’t work for companies
- Unicorns. I’ll expand on this below.
We bastardize words everyday and make-up others, so whatever. The investment world is a hit business, so you either go big or go home and right now we’re going HUGE! We’re still at the party though that’s either winding down or about to hit up the after party and go all night. As I mentioned above, we don’t want a bubble 2.0 so companies are waiting longer to IPO but need more capital to grow into the company they hope to be one day. Right now, most are 99% not worth their valuations, but hopefully they will exceed it when they succeed at what they set out to do.
Because of this unusual phenomenon — I can’t say ‘bad’ as we don’t know yet — we have some new players in the game in the form of hedge funds, banks and PE. Why? Because companies used to IPO earlier (lower valuations) and experience their growth in the public markets, so they are seeing lower returns and want to get in earlier. This fundamentally has changed the playing field because the average exit size for an angel is around $30M, about $100M for VCs and now $1B+ for PE. Is that a bad thing? We won’t know for a few years, but it’s a great segue into my predictions for next year…
As a preface, I’ve only been doing this startup thing since college, 8 years ago, and have been more formally investing for the last year or so. Based on my experience, the articles I read, the people I meet and the endless twitter streams I scroll through, here we go:
- Friends, Family, Fools, and Seed rounds will continue along to fund ideas and those with a little traction. The “Series A” crunch is only a side effect of too many companies that shouldn’t have been funded trying to raise more money and creating noise in the market.
- Equity crowdfunding will exacerbate this problem by flooding the market with poorly vetted companies with unprofessional term sheets by people who don’t know what they’re doing. I found some interesting deals earlier this year that are mind-blowing…https://twitter.com/Trace_Cohen/status/661295028355137536
- Space really is the final frontier — we just joined the Space Angels and this is inevitable as our future literally depends on it. I don’t think space will be commercialized by next year for the public, but the foundation will be created to send civilians into space. In the next three years though we will mine or capture some foreign object and capitalize on it.
- 3D printing will have another bad year until 2017 when bigger and more established companies develop technology that actually makes it practical for us to use this technique more frequently in our homes. This could be compared to printing a circuit to replace a broken one, a new cable if ones breaks — you either forget it or use it as a tool so you don’t have to go out and buy one.
- Some Bitcoin (blockchain) technology will be implemented in the financial industry and we can finally end the debate if it’s revolutionary or a bust.
- The Fintech industry will continue to grow as more banks go digital to keep up with consumers, but still not fully mature via a huge acquisition or IPO.
- One of the food delivery startups will be acquired and leave the rest out to rot or consolidate.
- A few really good use cases and practical applications for Virtual/Augmented Reality will launch, but not be mass produced/utilized until 2017.
- Subscription services for X will either consolidate or go out of business.
- Hollywood will continue to remake old movies / things we grew up with and destroy our childhoods.
- Online sports betting (Fanduel/Draftkings) will get regulated heavily by each state, but still continue to grow, just not as explosively.
- A heavily backed media / publishing startup, like Buzzfeed or Vox will IPO.
- Legacy media will try paywalls again to fight them, and adblocks off but it will only delay the inevitable.
- Uber will not IPO and all the others competitors that just formed an “alliance” will merge or work together more closely.
- We will see a few of the Unicorns IPO successfully though — meaning their stock price will go up. In 2015 23 tech companies IPOed and their median growth was 4.1%
- Cannabis regulation will finally light up and move forwards to allow the sale medicinally and recreationally in 3 or more states.
- More TV shows like Shark Tank will launch in other verticals and not last more than a season. Shark Tank is purely entertainment and they have not made any successful investments (acquired/IPO) via the show since they begin in 2009.
- Cord cutting will take a huge leap forwards when one of the major media companies announces a new subscription service — TV package or deal. It won’t finally set in or make a dent until 2017 though.
- More major consolidation/mergers will take place across all sectors. This is in response to increased competition by startups, inefficiencies in their business models and just the fact that they spend (waste) way too much money fighting each other legally and via ads/marketing.
- We will start to see the first integrations of health tech in fashion that’s actually useful, like monitoring or health feedback in everyday clothes.
- Online purchasing of commerce will continue to grow through social networks via “Buy” buttons as curation/discovery grow.
- 10–20% of the current Unicorns as of 2015 will either go out of business or sell pieces of their business to others (acquisition/mergers). New companies will replace them though that have either not launched yet or raise funding to increase their valuation.
- NYC will have a few major exits/IPOs. Etsy was our biggest VC backed IPO in history. Foursquare, Digital Ocean, Warby Parker, Seatgeek, Bonobos, Refinery29, Sprinklr, MongoDB, ClassPass, Gawker, Vox, AppNexus, ZocDoc, Jet, BuzzFeed and WeWork — we’re looking at you!
- *Unfortunately, I can’t predict how our nation will vote and how the election of our next president will affect any of this though…
As I reviewed this list, it definitely seemed overwhelming! However, this is the world we live in. And, if you were ever curious, this is what I think, read and talk about every day.
Overall, I believe my forecast to be positive, kind of like the ‘state of our tech union is strong’ for the coming year. Like part of our investment thesis, we invest in people that “will figure it out,” and I’ve been fortunate enough to meet many people that fit into this category, even if we didn’t invest in them, they will do precisely what we expect them to do.
What do you think will happen next year? Let me know if I missed any major trends and I’d be happy to add it to the list for 2015 or even predictions for 2016 so we can create a master doc.
As a side note on our investments, about half of our portfolio companies are run by women founders or has a women co-founder, and we’re about 50/50 as well for B2B/B2C. Check out NYVP here.
Happy Holidays and New Year!
Image credit: CC by Ed Schipul