Three predictions for 2020
As I have done in the past, I’ll retake my chances at predicting three major trends for next year. However, before we forecast the 2020 venture and tech trends, I’ll look back on how a few of my predictions from 2019 panned out.
To measure how my predictions tracked, I’ll rank each on a one to five scale. (Remember that time when we thought everyone would be wearing Google glasses? Well, I digress.)
How true were my predictions for 2019?
1. In two years, several of Softbank-backed companies will collapse: A lot has been written about the WeWork saga, which exposed to the entire world all the problems of the Softbank model. I wrote before that this model is akin to giving steroids to a young athlete hoping he will grow faster. I believe that WeWork is only one of the first Softbank-backed companies we will see collapse in the next few years due to the same general illness, which is when there’s a growth at all costs mindset with little discipline on burn and margins. Another recent case is the loss Softbank’s Vision Fund took with the sale of Wag, the dog-walking company.
Verdict: Very true (5)
2. Corporate investors will start pulling back from the market: In the past decade, we’ve witnessed a consistent rise in corporate investments, mostly due to a bull stock market and historically low interest rates. When I wrote this prediction, I expected a jittery public market in 2019, which I thought would push large corporations to cut back on allocation to startup investing while focusing on their core business. While the market stayed strong in 2019, corporations became slightly more cautions, and 2019 was the first time in the past decade where corporate venture capital activity slightly declined (according to NVCA 2019 data). Yet they still remain a significant part of the venture ecosystem today, and we haven’t seen a real pullback.
Verdict: Somewhat true (3)
3. Developer-focused companies keep leading the way: 2019 was an incredible year for developer-focused companies. The public market loves the efficiency and scale of these companies. As key examples, we saw Datadog’s incredible IPO this year reaching north of $10 billion market cap, Twilio trading at $13 billion, Mongo at $7.5 billion, Elastic at $5 billion, and Atlassian hitting $30 billion. Building such large companies selling software tools to developers was almost unheard of before, unless you were Microsoft.
Verdict: Very true (5)
Now, let’s try to guess what’s to come in the new year based on a few emerging signals.
What to expect in 2020
1. Open source is eating software: The rise of cloud computing and “software eating the world” was a driving trend of the early century. Now, we’re starting to see a new phenomenon where open source is eating software. Open source software (OSS) is not a new thing, but is currently having a meteoric rise. No longer is it considered the cheaper version of closed source software, but rather the superior alternative with higher quality, better support, and more flexibility. Often it isn’t very easy for legacy technology companies to compete with open source projects because of their powerful communities, strong grass root adoptions, and a bottom-up approach to sales and marketing. OSS companies effectively leverage these strategies. Similar to the way Elastic leveraged OSS to go after Splunk, I believe we will see many more traditional software companies challenged by open source projects.
2. Israel will produce larger exits than ever before: In April, I explained why 2019 was an incredible year for Israeli startups. Since then we’ve seen Intel acquire Israel-based AI chipmaker Habana Labs for $2 billion, Fiverr go public and trade at approximately $700 million market cap, and the number of Israeli unicorns skyrocketing with companies such as Hippo, Riskified, Monday.com, and TripActions joining the prestigious club. I believe this trend will further intensify in 2020 with companies such as JFrog and Appsflyer. Better startups, stronger talent, and more funding results in larger exits that will continue to feed the local ecosystem. This snowball effect is only gaining more momentum over time.
3. Back to basics: The past few years were all about the AI and Machine Learning craze. We saw a proliferation of startups leveraging AI to tackle unsolvable problems in almost every field. New cyber startups tried to leverage AI to identify malware, detect abnormal behavior, and resolve cyber incidents. In the vehicle space, many startups tried to leverage AI to help accelerate autonomous driving; in other sectors, AI startups aimed to replace lawyers, accountants, and many other knowledge workers. I believe in 2020 we will see more companies go “back to basics” as they prefer deterministic logic over shiny AI-based solutions. Increasingly, people will realize that while AI-based solutions are great at solving some problems, they are still far away from solving many others. AI will still shine when focused on making humans more efficient vs. replacing them. (There won’t be a robot takeover this year!). Basic products, which are based on deterministic logic and workflow tools that help humans operate more efficiently, will be the winners in the next few years.