April 7, 2021
The year 2020 impacted the entire global way of life like never before as every business trend that we knew has been turned on its head. One huge benefit that came from the pandemic in 2020 was the acceleration and rapid innovation of certain software technologies. Let’s take a look at some of the more significant software development trends that have shaped the industry in 2020 and will continue to influence it in a post covid 2021. These will impact the startup world and lead to opportunities in venture capital investment in future tech-enabled startups.
- Low/No Code – First and foremost in the area of software development, we are seeing no code, low code, as well as code automation, blast off. Business process management and no-code or low-code development software will converge to provide companies with all-in-one platforms to run their business. Also, code automation will allow developers to automate the most repetitive aspects of their day-to-day tasks. Both of these will allow for more rapid development of software and speed to market. Startups have already greatly reduced the time it takes to create market-ready software products such as apps or web platforms. This will make them move even faster!
- Cloud everywhere and the advent of multi-cloud The pandemic led to an acceleration and scaling to the cloud. Forrester predicted Global Public Cloud IT infrastructure market would grow to almost 120 Billion USD with 35% growth in 2021.1 Simply put, cloud solutions provide flexibility and improve productivity which allows the ability to scale rapidly without having to restructure or recode your platform. This allows the flexibility for SaaS, IaaS, and PaaS to rapidly build apps, manage teams and communicate, as these services can be easily adopted and rolled out. Md Kamaruzzaman says, “Cloud is the forerunner industry, which actually becomes stronger than ever during the pandemic…No matter which industry you are in (Government, Startups, Agriculture, Healthcare, Banking), plan cloud migration as the entire world moves to cloud sooner than later.”2
- AI for All – Artificial Intelligence has been democratized and available even for the relative novice thank to the rapid advancement of processing and deep learning. Worldwide revenues for the artificial intelligence (AI) market, including software, hardware, and services, are forecast to grow 16.4% year over year in 2021 to $327.5 billion.3 Startups can now leverage the prevalence of AI technologies (easily available APIs can be found at Facebook, Google, and Microsoft) to solve and create like never before. In the advent of advanced image recognition, for example, we have seen deep fake videos where deep learning and image processing power have accelerated its use; this leads to all kinds of cybersecurity issues. China has been at the forefront of capturing and monitoring the movement of its population through advanced face recognition AI which is especially helpful but extremely authoritative as it has controlled movement during the pandemic. Also, in 2021, we are seeing breakthroughs in natural language processing, where AI will write articles or write small software programs. This has been demonstrated both in AI writing articles and AI to combat the fake writing of these articles!
- Digital Mirror or Twin Factories – by far a favorite software technology trend in 2021 are digital mirror or twin factories which utilize AI and deep learning to create a virtual replication of a real-world entity, such as an airplane, a manufacturing plant, a supply chain or even a city. 2020 statistics put the market size for digital twin technology at approximately $3.1billion with an estimated compound annual growth rate of 58% meaning that by 2026, it’s market size will hit the 48 billion-dollar mark.4 According to Jason Hill, “In the past, it was not feasible, both technically and economically, to handle the volume of data required to generate realistic digital copies of an object. However, the costs of computing, storage, and bandwidth have now dropped dramatically, enabling the rapid collection, aggregation, and analysis of data, generated by connected, smart technologies.” 5 A well-constructed Digital Twin can facilitate the simulation of possible scenarios and predict possible outcomes, allowing companies to try new strategies out digitally before rolling them out in the real world. Not only does this save valuable time, but it can also help to identify possible flaws with a strategy before it is deployed and can cause issues 4 This, in turn, leads to evaluating trade-offs and improving efficiency in design and manufacturing. Once again, China with the help of 5G technologies has been at the forefront of the digital twin revolution as it seeks to digitize its cities of Shanghai and Beijing. Xiaopeng An, cofounder of Xpeng motors (a large Electric Vehicle manufacturer in China) says, “in the future, two systems will coexist in this society, one is the physical world we see, and the other is the digital twin that we cannot see.” 6
There are of course many other trends that will lead to powerful and innovative startups in 2021 and beyond such as advanced cybersecurity, biometrics, edge computing, and ongoing iterations in cloud infrastructure. All of these will affect the way startups evolve and you can count on Elementz Ventures to be on the lookout for these companies.
“An idiot with a plan can beat a genius without a plan.”
– Warren Buffett
1. MORE THAN A HOPE AND A PRAYER REQUIRED – At times, it can seem that the early stage investment process is simply a ‘shot in the dark‘: a partially-applicable list of mumbo-jumbo that inadequately defines unique situations, advised on by less-than senior ‘mentors‘ unsure of the next step or how to position for the subsequent step. As future builders, reaching the next stage in consistent fashion, it helps to have advisors that have (1) operationally been there and done from inside, making crucial business decisions and have (2) hands-on intimate details of the later phases in order to construct a plan to get there. Some experts believe pattern matching is crucial, but it goes against the central tenets that of innovation in entrepreneurship, that innovation arises from the novel rather than the contrived, suggesting success simply because you fit a certain mold. However, experience does lead to efficiency and insight beats hustle surrounding the innovative disruption itself. Just like it a imperative to have a soccer coach who’s operated at the highest levels and knows intimately the technical moves required to succeed when simply running fast is not enough, likewise ventures should be treat start-up with the same care and precision. For example, in one instance, we merged three smaller companies in order to combine a larger entity which could grow into a disruptive space. We didn’t create the innovation or the disruption, it was there already and imminent and going to happen, whether we were there are not. However, we recognized the pre-existing trend, and applied long term strategies, models, and metrics to focus on the salient dimensions to capitalize on that trend, leading to a public listing.
2. A FIELD OF LILYPADS OVER A SINGLE FILE – Whether small or large, the same fundamentals remain constant in business. Options and potential pivots are the lifeblood of growth amidst constantly changing backdrops. Imagine a frog crossing a pond with only a single trail of lily pads. In essence, the solo frog would be much more successful marking a defined route in a field of lily pads in order to choose the successful path. As life hands out unforeseen ‘lily pad flimsiness’, the frog with diverse, pivot-able field to cross the pond has a better chance of making it across to the end goal. This is an obvious truth for products in finding users. A seasoned professional wouldn’t have a single group even with catering explicitly and first to the that single group that cannot live without your product (the most ardent fans). Likewise, why would one strategically plan a singular path with the lifeblood start-up financing? We know the lily pad field and the benefits of staying the center with open options all around. If you’re not intimately aware of the options, how can you plan to stay in the center? For example, we had companies we worked with who originally wanted to proceed down a traditional IPO pathway. However, because they focused on the right metrics and dimensions, when the IPO market was closed or unfavored, they were able to pivot toward a SPAC, direct listing, or other option and stay actively growing instead of in suspended animation awaiting finance.
3. VIBRANT INVESTMENT PATHWAYS = VIBRANT ECOSYSTEMS, NOT A COLLECTIVE OF START-UP COMPONENTS – As one studies post-SPAC San Francisco and New York vs. other government-incentivized entrepreneurial ecosystems, one begins to surmise that simply having ecosystem components like a talent pool (university), service providers (lawyers, accountants, other professionals), or large Fortune 500 companies nearby, doesn’t necessarily guarantee a successful entrepreneurial ecosystem. We believe too much focus on checking off the list of ecosystem components is not really a difference maker or many ecosystems, as every contrived ecosystem would be successful, international or domestic. Rather winners have an available defined pathway and understanding of the endgame: where to go and how to get there. We believe within Orange County, Elementz has the premiere position in understanding those every changing pathways with our experience. We look at the example of the Bay Area community embracing direct listing and the SPAC structures to enable a viable outlet and options for public investor for the myriad and variety of portfolio companies, and as they have defined the pathways and built the chain, the companies continued to grow and succeed and the pipeline grew stronger. Similarly Boston/NYC early stage community has adapted in reverse but both have understanding of the endgame and that’s why they’ve grown.
4. CERTAINTY IN EARLY STEPS BUILDS CERTAINTY IN LATER STEPS – now if a collective company knows the next steps, it can plan more fully for those steps. Beyond the (A) metrics and planning, the company can consistently (B) know what future investors will judge you upon and allow you to (C) aiming big toward upcoming catalysts and developing markets. Like rock climbing, where a firm hold necessarily allows a climber to develop a firm hold for the next hold to launch upon, we believe that experiential certainty which helped you develop early stage confidence, that confidence will carry on the end goal. Using the soccer analogy again, the chain of properly placed passes (and options for dangerous passes) leads to the score and end goal. In the long run, returns are better and companies are stronger. While experience doesn’t guarantee success, it certainly gives you the best chance, with these understandings and diligent execution accordingly, we believe more companies have the ability to grow larger and resultantly, our fund produces better returns in the long run.