I am going to take again the risk of looking foolish a year from now by predicting three major trends for 2019. But first, let’s look at my 2018 predictions (which turned out to be pretty accurate, so it’s fine if I blow it this time):
Bitcoin will crash- this turned out to be more accurate than I expected. When I wrote this post, “Bitcoin mania” was at its peak and the virtual currency traded north of $14,000. Bitcoin is now trading at ~$3750, down by almost 80% from its peak only one year ago. One thing we learned in 2018 is that bitcoin currently has just two main use cases — illegal activity and currency speculation. But both use cases are facing strong headwinds: Illegal activity and money laundering via bitcoin is becoming more difficult as regulators and government agencies fight back; and speculators are losing momentum as bitcoin keeps being forked into more currencies, making it more difficult to speculate on a single one. So until someone comes up with a real, viable use case for bitcoin, I believe we will keep seeing it decline in 2019.
More money will be funneled to fewer startups- this also turned out to be true. Total investments in the US reached a decade high this year and has likely eclipsed $100B . But while investments got bigger, the number of deals has in fact declined. This trend was very noticeable when looking at the volume of seed rounds, which was cut by half over the past few years (see my post about the new seed rounds). For the first time ever, the majority of capital in 2018 flowed into $50M+ deals:
Innovation will spread outside of Silicon Valley- this was true too. The combination of high rent, crazy competition over talent, and the growth of new startup hubs outside the Bay Area resulted in defying traditional wisdom that billion-dollar companies are only created in the Bay Area. Both startups and investors significantly increased their presence outside the Bay Area last year (or read this Economist article)
- Corporate investors start pulling back from the market- Corporate VCs more than doubled their investments over the past 5 years as they sought more exposure to innovation. As we enter a more jittery public market in 2019 (and perhaps even see it collapsing), the easiest decision many large corporations will make is to cut back on allocation to startup investing and focus on their core business.
- Several of Softbank-backed companies will collapse (this is a 2 year prediction)- Softbank’s $100B Vision Fund is a major experiment in startup investing. But like any large experiment, there will be many failures along the way. And in this case the victims will be startups that raised too much money from Softbank at a stage in which they were not ready to handle such amounts. The main problem is that if things don’t go well, there is no other fund that can come in after Softbank to salvage these startups- so it is mostly a binary outcome- go big or go home. I am not sure whether we will start seeing the results of the Vision Fund experiment this year as the fund only began investing less than two years ago so most of the portfolio is still well-capitalized (though often burning money like there is no tomorrow). But in the next two years I believe we will start seeing the casualties.
- Developer-focused companies keep leading the way- I wrote about this before here. The essence of “software is eating the world” is that every company is now a software company, and as such the power is constantly shifting towards developers. In parallel, for multiple reasons, software development is becoming more and more like building Lego. And today developers mostly rely on external building blocks such as open source software or API-based services. The result is that developer-focused companies will keep winning over traditional companies which still offer monolithic services that are designed for senior executives to push down to their teams.