The primary trends set to shape the emerging tech VC market in 2021.
Agtech – expect field robotics to receive a record level of VC investment in 2021
The pandemic has exacerbated labour shortages in the agricultural industry leading to rising long-term food demand on a global scale. Field robotics and smart field equipment could help meet this need by allowing farmers to automate manual functions and reduce their reliance on human labour. Whilst full commercialisation is likely to take several years, expect VC investment to ramp up in 2021 due to strong market drivers and the potential for a large addressable market.
Artificial Intelligence and Machine Learning – natural language technology (NLT) is likely to attract the highest VC investment in 2021
Natural language technology has experienced technical breakthroughs in 2020 that position the technology to become a building block for start-ups and significant advances in AI. Many of the major breakthroughs have been in natural language processing (NLP) a subset of NLT. NLP allows analysis and interpretation of human communication through neural networks. In late 2018, Google released BERT allowing better
contextual understanding of text. This lead to emerging algorithms ALBERT, RoBERTa and OpenAI’s GPT-3 to achieve state-of-the-art results in NLP. Performance is increasing in line with increased usage and computation power, suggesting further investment could trigger further exponential gains and commercial traction. A flow of later stage VC deals could create a wave of NLT unicorns in the near future.
Cloudtech – remote work technology represents a long term megatrend with significant exit opportunities in 2021
The COVID-19 pandemic catalysed the need for remote to allow business continuity and at the same time drove demand for products that promote work-from-home (WFH) productivity. The trend of WFH will likely persist beyond the end of the pandemic. The initial adoption of remote working saw widespread adoption of video conferencing tools such as Zoom, with this market segment now maturing into a deep ecosystem of digital and virtual collaborative tools. Enterprises are embracing tools for software
development, product design, project scheduling, information hubs, employee management, virtual event platforms and communication. This has led to high demand for digital infrastructure such as VPNs, networking solutions, next-gen security and cloud computing. This has created opportunities for start-ups as the customer base grows and demand increases. There has also been significant late-stage VC investment into a number of the existing players suggesting we could see a number complete exits through IPO in 2021.
Enterprise Health and Wellness Tech – expect e-pharmacy incumbents to expand their reach across the drug distribution industry through partnerships and through the acquisition of innovative start-ups to widen product offerings
E-pharmacies are e-commerce sites that sell and deliver over the counter and prescription medicines directly to consumers. The pandemic has accelerated the conversion from traditional bricks and mortar pharmacies to e-pharmacies and this is likely to drive further expansion of the e-pharmacy industry in 2021. Most e-pharmacy incumbents are owned by large retail companies such as Walmart and Amazon or
insurance companies, so the opportunity for start-ups to take market share in e-pharmacy is limited. The VC investment opportunities will lie in start-ups developing innovative add-ons that will help e-pharmacies broaden their product offerings and generate additional revenues.
Fintech – 2021 is expected to be a record year for VC exits via the public markets for consumer fintech companies
The fintech industry is currently top-heavy in consumer companies; seven of the top ten fintech unicorns in the US provide consumer services. Consumer fintech companies have attracted significant investor interest in recent years. In North America and Europe, these companies raised $11.7 billion between 2018 and 2020. Limited bank branch access and stay-at-home restrictions have altered the landscape creating a surge in demand for
flexible banking solutions. 2020 was a watershed year for financial apps and other digital banking and money management services. As consumer fintech companies scale, expect them to close the gap with traditional retail banks in regards financial service offerings. The demand for product bundling is gaining momentum and helping start-ups to acquire and retain more customers as they offer an increased range of retail financial services.
As the range of fintech services expands, consumer adoption will increase and late stage fintech companies will come under pressure to IPO. If the existing public fintech companies continue to trade well then expect an even stronger year for consumer fintech exits in 2021.
Foodtech – plant-based, alternative protein and cultivated meat start-ups will see elevated M&A activity in 2021
Plant-based foods have gained significant traction amongst consumers. The big food companies will look to compete with the emerging market leaders through the acquisition of next-gen plant-based foodtech start-ups. The past two years has seen significant VC investment into plant-based food start-ups leading to a crowded, competitive environment. These conditions could foster increased M&A as the industry consolidates around the winners.
Information Security – public market demand for cloud-based SaaS companies could see a surge in infosec unicorn IPOs in 2021
2020 disproportionately benefited late stage infosec companies seeing late stage VC rounds at the expense of backing early stage innovation. Before the pandemic, a pipeline of IPO candidates had formed to take advantage of market conditions. If a number of these COVID deferred listings go ahead this year then expect a surge of investment into the early stage, innovative infotech companies.
Mobility Tech – expect a second wave of SPAC mergers focused on self-driving technology
Publicly traded electric vehicle stocks continue to outperform. As of December 2020, Tesla’s valuation had surpassed that of Walmart and the market capitalisation of Nikola stood at over $7.0 billion despite not having yet produced a functional prototype. This public market enthusiasm towards electrification is likely to expand to include self-driving technology leading to a new wave of SPAC market debuts for autonomous vehicle technology companies.
SPACs are an attractive listing option for highly capital-intensive start –ups at the pre-to early revenue stage and they should prove an attractive option for autonomous vehicle companies.
Supply Chain Tech – last mile delivery platforms are primed for another significant year in 2021
Last-mile delivery platforms serve a large, rapidly growing and underpenetrated addressable market that has seen significant expansion due to the COVID-19 pandemic. Whilst the overall delivery market is growing, expect VC and pre-IPO app-based food, grocery and convenience item delivery services to post significantly faster growth. These companies spend heavily on marketing and serve an underpenetrated market relative to general e-commerce delivery. The shift in customer behaviour seen in 2020 is likely to persist long-term as consumers have grown accustomed to the convenience offered by food, grocery and convenience item delivery, making it more likely they continue to use these services even after the necessity for them dissipates.
In December 2020, DoorDash went public and soared on its first day of trading to a market value of $72.0 billion. DoorDash’s successful IPO validates the continued venture backing of early-stage mobility start-ups and sets a strong precedent for future last-mile delivery IPO candidates.
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20 January 2021
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Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.
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