Three predictions for 2021
Following what now has become a personal tradition, I’ll try to look into my (non-existing) crystal ball to predict three major trends for next year. But before we dive into the 2021 predictions, let’s look how my 2020 predictions turned out, ranking each on a one to five scale.
How accurate were my 2020 predictions?
1. In 2020, a global pandemic will spread across the world driving entire countries to go into lockdowns: Very true (5).
Now seriously, let’s look at the real predictions and how they shaped out in this very strange year:
1. Open Source will ‘eat’ software and become a major phenomenon: It’s no longer a secret that open source is taking over the software development world. In just the past two years, there has been over $80 billion in liquidity value generated from M&A and IPOs of open-source software-based businesses. During these two years, 30% of all open-source project were created, and 1.3 million people joined the open-source community by making their first contribution. This led to a huge increase in the pace of venture investments into this space, including some mega rounds that were done this year in companies like HashiCorp (now valued at north of $5 Billion), Confluent (now valued at $4.5 Billion) and Cockroach Labs (which raised $195 Million). We at Bessemer think this is only the beginning of a major wave and have recently released our open-source investment thesis.
Verdict: Very true (5)
2. Israel will produce larger exits than before: Last year I anticipated that the better crop of startups, stronger talent, bigger ambitions, and more funding will result in a snowball effect that will continue to feed the Israeli ecosystem over time and drive to larger exits. I still underestimated how fast and big this effect will be. In 2020 we have seen Israeli public tech companies reach unprecedented levels, with Wix trading at $15 Billion market cap, Fiverr at ~$8 Billion market cap, Jfrog and Lemonade which both went public this year now trading at a ~$6 Billion market cap. Only in the past few months eight Israeli companies joined the “over $2 Billion valuation” club (Gong, Monday, Snyk, Next Insurance, Tipalti, Via, eToro, and SentinelOne) and Israel has produced 19 (!) new unicorns this year. To put things in perspective, according to Crunchbase the US produced 59 non-Israeli new unicorns during the year (3x the number of Israeli new unicorns). According to the most recent Cloud100 List, one of eight top cloud companies in the world is now Israeli. It seems like over the past year the local ecosystem has matured by a decade.
Verdict: Very true (5)
3. AI-craze will subside as startups and investors go “back to basics”: Artificial intelligence was the hottest term in 2019 with almost every new startup claiming to use AI. I thought that people will increasingly realize that while AI-based solutions are great at solving some problems, they are still far away from solving others. It’s difficult to validate the accuracy of this prediction. On the one hand, it wasn’t a great year for AI as it has disappointed in helping the world find ways to cope with the global pandemic (you can read more here) and it now seems like investors are a bit more cautious when they hear the term ‘AI’ in a pitch. However, there is no doubt AI is one of the major innovations of this decade and I still believe we will see many industries completely re-shaped by it. It just might take a bit more time than some people anticipated.
Verdict: Somewhat true (3)
Now, let’s try to predict what we are going to see next year.
What to expect in 2021
1. A tale of two economies: COVID 19 pandemic has created a huge divergence between what is often referred to as the “old economy” and the “new economy”. On the one hand, the coronavirus pandemic unleashed record levels of joblessness across the globe, leaving many people, especially from economically deprived communities, without a steady source of income and facing a dire future (some even say a lost generation). Yet on the other hand, the tech world is in the midst of a party not seen since the dot com era. Public tech companies are trading at an all-time high, with Apple, Microsoft Amazon and Google now worth more than many of the worlds’ largest nations. Tech IPOs are booming, with 3 of the largest tech IPOs ever taking place this year. And the BVP cloud index is up 160% since its March low. It is pretty clear that the new digital economy is taking over the old world. Businesses that won’t adapt will quickly find themselves squashed by new tech giants, and people who don’t have access to technology (fast internet, basic technological skills, etc.) will find the job market much more challenging in the future. This will be one of the main issues countries around the world will have to cope with in order to ensure a major part of the population is not left behind. Technological literacy is no longer a privilege but rather a necessity.
2. VC funding will skyrocket: VC funding has held strong so far in 2020 regardless of the pandemic. After a surprisingly good Q2, more capital was invested in Q3’20 than in the same quarter last year, and it seems like Q4 will follow the same pattern. The resilience of venture investment (and public markets) and the soaring valuations were definitely not expected when we entered the pandemic (remember Sequoia’s black swan post?). I suspect we will see a huge increase in funding next year as more capital flows into what is now the best party in town. Over the past decade, as VCs investments grew significantly and valuations increased, the pace was still constrained by investors being worried about the long bull market coming to an end one day. But now, the long-feared market crash has come, and guess what? The startup funding environment is the ‘hottest’ it has ever been. I suspect this will lead to much more risk taking as in the constant battle of fear vs greed, fear has now almost entirely vanished.
3. The rise of China tech: Although COVID originated in Wuhan, China has bounced back faster than any other country. China is now poised to emerge as the big COVID winner and is expected to account for as much as one-third of next year’s global recovery. But it’s not just the growth of the Chinese economy that is fuelling the Chinese tech market, but also China’s new mission to achieve technological independence from the US. This has become a top priority for the Chinese government as Chinese companies come under increased pressure from the US including the ban of TikTok and the sanctions against Huawei. The first wave of Chinese tech giants (Tencent, Alibaba, Baidu, etc.) grew mostly with the rise of consumer apps and services. I believe we will witness another wave which will include additional sectors like AI, B2B services, cloud, semiconductor, etc. It is still unclear what this means for the rest of the world but will be fascinating to see how this plays out.