It’s no secret that every investor in Silicon Valley is looking for the hottest new startup. Whether it’s Sequoia Capital or the infamous Peter Thiel (who seems to be investing in more than startups lately!), the biggest VCs are constantly on the hunt for the next Facebook and Uber. In this post, I’d like to outline some major trends within technology-enabled companies and give you all a sneak peak into my presentation later this week.
It has already become an industry buzz word. Artificial intelligence is the ability of machines to understand and learn how to process human cognitive functions and other forms of complex data. Investors are claiming AI is the key to a successful business in the future, and many vow they won’t invest in a business without some incorporation of AI. The power of AI is present in self-driving cars, Siri, and drones. While many larger tech companies like Apple and Google have moved to incorporate AI into their products, there is still plenty of room for smaller startups to do the same and create “smart” products.
Food tech creates new levels for foodies. There are so many advancements in the food industry happening right now including digital content, social, local, mobile, grocery, e-commerce, delivery, ordering, payments, and marketing and analytics for food. While I find some areas more compelling than others, food tech is absolutely hot right now and startups across the world are trying to make a move into this massive industry. Some highlights in the food tech industry:
- Online grocery: FreshDirect is huge in NYC, while AmazonFresh is dominating nearly everywhere else. Low prices and convenience are the competitive advantages putting traditional grocers out of business.
- Subscription boxes: Blue Apron seems to be dominating the space with their healthy, ready-to-cook meals. Other players such as Nature Box, Juicero, and Munchery are also trying to differentiate themselves in this subscription-food-box space.
- Restaurant reviews and Local discovery: Main takeaway here is that people really hate Yelp. The demand for an easy to use platform that allows you to see reviews from previous customers has allowed small startups like The Infatuation and Wine n Dine to thrive. If you haven’t checked them out, it’ll change the way you eat out.
- Ordering and Delivery Marketplaces: This is one of the more difficult sectors of food tech, mainly because of the low margins and high risk. When companies like Door Dash and Postmates delivers you Chipotle, they can’t charge the user too high of a delivery fee, and they must ensure the food arrives promptly or the user will be dissatisfied. Many companies have entered this space because of the low barriers to entry, but many have also failed and will continue to struggle with the entrance of larger players like UberEATS.
As another buzz word in tech right now, fintech has been receiving a lot of funding from investors. Similar to food tech, fintech has accelerating growth in multiple areas, putting pressure on traditional banks and credit cards to innovate and improve their offerings. While many startups are doing quite well in this space, larger incumbents are failing to innovate because either they’re still hung up on their product’s value proposition from 50 years ago or they are too big to create actual change within their companies. Some highlights in the fintech industry:
- Payments: It’s no secret that nobody uses cash anymore. Whether it’s Apple Pay, Venmo, or Tilt, new payment platforms allow users to seamlessly pay and request money from vendors and friends. The rise of payment platforms has been highly correlated with the increased dependance and usage of mobile devices, and it’s likely that this segment will continue to see growth as people rely on their phone to do almost everything for them.
- Investment Platforms: Long gone are the days of sitting down with a middle-aged man to go over your finances and invest your savings in the stock market (sorry Dad!). With platforms such as Robinhood, Ellevest (highly suggest), and Wealthfront, you can start your own investment portfolio online in less than 15 minutes. These tools are closing the gap between the “high net worth individuals” who could invest in the stock market previously, and the younger generation who might only have a few hundred dollars to invest. This sector has been a huge threat to traditional financial advisors, and banks like UBS have tried to launch apps to compete with these new companies.
And What’s Not…
Unfortunately, wearables haven’t picked up the speed that investors initially thought they would. With several players in the space, like FitBit and Apple Watch, smaller players like Ringly and Bellabeat have struggled to gain traction among users. I believe the main struggle for companies selling wearable electronics is the innate behavioral change required of users. While some people have been willing to adapt to wearing an electronic device on their body, many people have been reluctant to (1) buy this expensive tech and (2) wear it daily, meaning their value is drastically decreased.
Venture capitalists look at a wide variety of sectors and companies on a daily basis, and these four sectors definitely don’t provide a whole picture on what investing in technology-enabled companies looks like today. When looking at a company for investment, there are several other factors besides the market that investors will consider. Important factors include the strength of the founding team, the product’s value proposition and differentiation, and the economics behind the company’s business model. Regardless if an industry is hot or not, investors must be able to evaluate a company, which can be increasingly difficult even if there are trends of success in that particular sector.