- Venture capitalists give us their predictions on tech trends to watch in 2021.
- They say the future of work is a hybrid of remote and in-person activities. Offices will be redesigned to safely accommodate group gatherings, as work becomes a place where people go to socialize.
- Three sectors that will boom in the new year are edtech, proptech, and climate tech, according to VCs.
- But investors can't seem to agree on the future of special purpose acquisition companies, or SPACs.
- Visit Business Insider's homepage for more stories.
The new year is almost here, which means VCs are peering into their crystal balls and posting their tech predictions.
In December, we asked about 20 partners at venture capital firms, as well as super angels who run their own outlets, to tell us the investment themes they're closely watching and a current trend that will fail to materialize in 2021.
Spoiler alert: Silicon Valley is back. All-white, male boards are out. And SPACs? TBD.
VCs also had plenty of opinions on the future of work, as coronavirus vaccines make their way into the wider population and some companies reopen offices. The consensus is that employees will find a happy medium working from home and from the office in a "hybrid work" model, and offices will be reconfigured to meet their needs.
We will be updating this list as more investors tweet and blog their tech predictions.
Last year's list was surprisingly accurate. Nothing went according to plan, and still, the investors who told us that the trends to watch were remote work, celebrity startup investors, and an exodus from Silicon Valley were spot-on.
Here are the tech trends to watch in 2021.
Investors scramble to back 'proptech.'
This year, lots of millennials saw their Instagram feeds turn into an endless stream of house porn, as friends shared their photos on closing day. Houses sold in record numbers in 2020 as more people escaped their shoebox apartments and took advantage of low mortgage rates.
The shift away from cities has been a catalyst for "proptech," or startups building technology for the real estate industry, said David Blumberg, founder of Blumberg Capital.
In 2021, tech investors will jump at the financial opportunity for businesses that use big data and artificial intelligence to simplify and speed up real-estate transactions, Blumberg said.
Construction is another category that will benefit from advances in robotics, software, and manufacturing techniques, said Evan Moore, a partner at Khosla Ventures.
"Remote work has sent prices of asset classes in opposing directions (offices down, suburban homes up), screwing with some startups' plans, but 2020 hasn't changed the facts that, one, we need more homes, built sustainably, to improve housing affordability, and, two, construction is in the early days of integrating software-enabled systems," said Moore, a proptech investor.
Lockdown-fueled growth in gaming will be a boon to VR.
The video game industry got a lift from lockdowns, as people trapped inside spent more of their time and budget on gaming software and devices that let them escape to other worlds.
"That effect is here to stay," said Gigi Levy-Weiss, a general partner at NFX.
The former gaming executive predicts virtual reality will make a comeback as cheaper and better devices, like the Oculus Quest 2, become available. Games built for smartphones and smart speakers will also rise alongside the growth of traditional consoles, Levy-Weiss said.
People looking for new experiences might try new models, such as "skill games played with real money, social games with live video, and even physical games operated remotely," he said.
Startups will structure themselves around never having a physical office.
"Out of necessity, startups have been forced to move to a remote work structure this year like most companies around the world. But the difference with startups is that many of them are planning to always be remote first," said David Thacker, a partner at Greylock.
These startups will tool their processes and culture around a distributed workforce from the outset, which means they will never lease a physical office space for all of their employees, he said. They can hire the right job candidates from anywhere in the world, while their employees can take the job they want without having to make a trade-off on location or quality of life.
Other VCs agree. "The widespread acceptance of remote employees is the most significant evolution in the way we work that has occurred in the past 20 years," Bucky Moore, a partner at Kleiner Perkins, said. "Looking ahead to next year, I believe this trend will persist, paving way for a world in which companies are remote-first by default for the foreseeable future."
Job candidates will turn down offers at companies that are not diverse.
Companies need to do more than pay lip service to diversity, equity, and inclusion if they want to hire and keep top talent, said Jeff Richards, managing partner at GGV Capital.
This year, diversity went from being a buzzword to a well-financed initiative inside companies, especially as the tech industry's preferred stock exchange, Nasdaq, pushes a proposal that companies will need to have "at least two diverse directors" on their board in order to list.
Startups that are behind on hiring women and people of color "will lose top candidates who are now aware they should be asking questions about diversity" within companies, their leadership teams, and their boards, Richards said. "Diverse companies are going to win," especially now.
Katelin Holloway, a partner at Seven Seven Six, expects to see a "major overhaul" of the recruiting process, with companies using anonymous applications to eliminate their biases.
A new category of startups are born to serve hybrid-office needs.
There are some people who will rush back to the office as soon as it's safe, but many others will opt for a flexible arrangement that lets them work from home some of the time.
The typical work day will bend in other ways, with many employees choosing the days of the week and the hours they work, said Sarah Cannon, a partner at Index Ventures.
That shift could create a new category of software, VCs say, that helps companies keep track of people's schedules and figure out their real estate needs in cities where their workers live.
"There will be a set of tools emerging that are a unique combination of global vision with a local touch that will provide distributed teams resources and allow management of employees from different countries and jurisdictions," said Shruti Gandhi, founder of Array VC.
"Everything from onboarding, collaboration, performance measurement and employee benefits will be areas where startups can look to build scalable, cost-effective solutions," she said.
Offices will look more like hotels.
In a post-pandemic world, the office will evolve from being a place where people go to work to a place where people gather, said Jai Das, managing director of Sapphire Ventures.
"They want a home base and the opportunity to meet in person for team events, off-sites, all-hands, and so on. And for strategic cases where there are teams that need to work in person, they'll be able to have a place to gather," Das wrote of the continued demand for offices. "The net-net is that offices will be more about collaboration and teamwork than working in a silo."
Future offices may even look more like hotels, said Pete Flint, a general partner at NFX.
He imagines offices with more communal spaces for small and large groups to safely gather, the same way hotels use ballrooms or conference rooms. Offices will also move away from open floorplans to individual rooms or pods, which can be booked in advance, for health reasons.
"The on-site will become the new off-site," Flint said.
Gen Z will get new businesses off the ground.
Entrepreneurship is dying, with the creation of companies on the decline for more than 30 years, research shows. But new products that take the hassle out of starting and scaling a small business could help reverse the trend, said Talia Goldberg, a partner at Bessemer.
A younger generation of builders can access turnkey solutions like Shopify for setting up their online stores or Substack for creating a paid newsletter, Goldberg said. They can easily monetize their side hustle with services like Streamyard and Patreon, and people with more mature small businesses can hand off back-office functions to companies such as Gusto.
"From digital content to cloud kitchens to online storefronts, there are many emerging areas ripe with opportunity," said Goldberg, who was the firm's youngest partner in history.
San Francisco and Silicon Valley make a comeback.
The distribution of coronavirus vaccines is underway, and with it, the tech industry will see the return of millennials and Gen Z employees to startup hubs by summer, said Refactor Capital's Zal Bilimoria, who left Andreessen Horowitz to launch his own firm.
Some tech elites are making moves out of Silicon Valley, as they rethink the area's costs, political climate, safety, and more. But the supposed exodus will fail to materialize, Bilimoria said, as investors and founders remember why tech supercities like San Francisco, New York, Boston, and Los Angeles account for the majority of startups formed and capital raised. He cited a high concentration of highly educated talent and large potential business customers.
"Many companies will be able to grow to 100 people in Miami, Austin, etc., but will fail to scale their businesses as they fail to find team leaders and experienced execs," Bilimoria said.
The SPAC boom creates a frantic search for mergers.
There was a time not too long ago when a special purpose acquisition company was considered a four-letter word on Wall Street. That changed this year, as more specialized investors raised funds on the stock market with the express purpose of buying a private company to take public.
Now, those blank-check firms are searching frantically for businesses to acquire. (If they don't close within 24 months, they have to return funds to public investors.)
Companies that are well known to the public, like Opendoor, Clover Health, and Nikola, that agreed to go public by combining with a SPAC this year, could create a "snowball effect of more top companies choosing SPACs," said Lindsey Gray, a partner at Two Sigma Ventures.
Not everyone agrees. There are more blank-check firms on the hunt than ever and a limited number of private companies that would make such a deal. PitchBook, a private markets analytics firm, estimates that fewer than 30% of SPACs will complete an acquisition in 2021.
"SPACs will fail to materialize as a persistent, legitimate alternative for going public," said Tyler Sosin, a partner at Menlo Ventures. He predicts a few high-profile blank-check firms will "dramatically underperform in the public markets next year," hurting their appeal.
Edtech will remain a significant part of school, even when they reopen.
This year, edtech went from being a nice-to-have to being an absolute necessity as schools were forced to close mid-school year and adopt solutions to continue teaching from a distance.
The effects of the pandemic will reverberate long after kids go back to the classroom, according to Mercedes Bent, a partner at Lightspeed Venture Partners who focuses on edtech.
She's closely watching the surge of tools to enable homeschooling, social "experiences" for online college students, and subscription-based tutoring content, among other categories.
More software behaves like Slack.
There's software that helps you get work done and software that keeps your team connected. The downside of having so many tools is that workers lose time and patience switching back and forth between apps, said Jake Saper, a general partner at Emergence Capital.
He expects to see a rise in products that combine productivity and collaboration in one place — a category he calls "deep collaboration." These tools are designed to do a specific job, like designing a mobile app (Figma) or creating business contracts (Ironclad), and allow all the employees involved in getting a job done to work on it from the same piece of software.
The marriage of Salesforce's sales productivity tools and Slack's chat app marks "the moment of arrival for deep collaboration," said Saper, whose firm was an early investor in Salesforce.
The most in-demand company role is head of people.
Founders and investors know that growing a team isn't about hiring lots of people so much as finding the right people. For that reason, employees who specialize in recruiting and retention have one of the most essential functions at any fast-growing company, now more than ever.
"Without a question, 'head of people' roles have picked up going into 2021," said Jordan Ormont, a talent partner at Menlo Ventures. "Hiring is back in full swing and making sure distributed organizations are in lockstep is critical. We see founders leveraging heads of people as true business partners. If you don't have a rock star head of people in place, get one."
Katelin Holloway, a partner at Seven Seven Six, says the last decade brought human resources professionals "out from the back room" and into the executive suite. She was head of people at Reddit before becoming a startup investor alongside her old boss, Alexis Ohanian.
She expects others to make the leap. "In this new decade we'll see HR play key roles in venture, policy, and other critical industries in which having people and culture experts involved in important conversations from day zero will make a big difference in years to come," she said.
Climate tech will be something every business buys and many VCs fund.
The climate tech industry is roaring once more. Investors are pushing billions of dollars into the sector every year, according to data provider PitchBook, as major corporations and governments pledge to lower their emissions, and some turn to startups for green solutions.
The trend will accelerate, "driven by Gen Z and their guilty parents," said Katie Jacobs Stanton, founder of Moxxie Ventures.
"We'll see a surge of climate tech startups meet this moment and develop solutions to help us mitigate and adapt to our warming planet," she said. The increase will also multiply the number of new climate-focused funds and investors who will "increasingly see the financial opportunity — not to mention moral imperative — of funding these solutions," she added.
"Climate tech will no longer be branded a speculative niche, but a core part of the venture ecosystem," Jacobs Stanton said. "It's do or die."
Seed deals rebound into "avocado" and "mango" deals, and a new kind of early stage emerges.
There was a slowdown in seed deals closed this year, according to data provider PitchBook, as venture funds plunged money into existing investments at the pandemic's outbreak.
But insiders say they saw just as much deal flow at the seed stage as any year. Instead, the seed stage is in the process of being "rebranded" as the round gets bigger and bigger.
"I think what we're starting to see is that the definition of a seed deal is changing," said Max Gazor, a general partner at CRV.
He's tracking an increase in activity at the pre-seed and "jumbo seed" rounds (sometimes called "avocado seed" or "mango seed" rounds), as well as a rise in venture firms and single-partner funds focused on this stage, "which is why I may more readily attribute what's being perceived as a decline to such factors as re-classification of round names and stages, than I would to some sort of systemic indicator or slowdown," Gazor said.
Graham Brown, partner at Lerer Hippeau, has another explanation for the supposed decline. Deals picked back up in the third and fourth quarter, which haven't been reported.
"Given the amount of capital pursuing early-stage at the moment, I think we'll see an incredibly active seed environment in 2021," Brown said.
The next generation of angel investors emerges.
Airbnb, DoorDash, Snowflake, and plenty of other unicorn startups went public in 2020, which means soon their employees can cash out by selling their shares on the public markets.
"2021 will create a lot of liquidity after the recent IPOs," said Shruti Gandhi, founder of Array VC. Flush with cash, some of those startup workers will try their hand at investing.
An angel investor is someone who writes checks with their own money, as opposed to an institutional investor, who pools outside funds to purchase shares of a private company.
Virtual events as we know them will cease to exist.
Even as some investors shovel money into technologies for hosting virtual events, others say virtual live events is a phenomenon that will fizzle as a growing population gets vaccinated.
"Virtually attending a major event, conference, or concert is a subpar substitute that will lose momentum once it is safe again to gather in person, said Graham Brown, a partner at Lerer Hippeau.
"I believe simply migrating large, in-person events online at the same scale fails to replicate their benefits," Bucky Moore, a partner at Kleiner Perkins, said. "Rather, I see a future in which conferences are broken up into smaller, more intimate events that enable attendees to learn and connect in a more meaningful way. We invested in Welcome for this reason."
Welcome builds software for creating virtual events that feel like in-person gatherings, with stages, breakout rooms, and lounges for attendees to mix in, and other features.
Companies open their wallets for mental health coverage.
The pandemic was a boon for startups that sell mental health services like virtual therapy and meditation as an employee benefit, as more businesses signed up for services that help their workers deal with the chaos and confusion of today's world. The trend will continue in 2021.
"The events of 2020 have been a wakeup call for mental health awareness," Katelin Holloway, a partner at Seven Seven Six, said.
"In addition to an uptick in new policy rollouts to promote employee wellbeing, we expect companies to more generously extend budget for the purposes of supporting mental health in the form of wellness-oriented professional development programs, new internal support groups, and the recruiting of executives with HR backgrounds for top-level positions."
Startups wade into the therapeutic use of psychedelics.
Entrepreneurs will use the newly decriminalized status of psilocybin mushrooms in Oregon and Washington, DC, to create new businesses around the therapeutic use of psychedelics.
Masha Drokova, founder of Chapter One Ventures, hasn't made any investments in the space yet, but she sees "better and better teams" working on psychedelic therapies, she said.
"We see lots of startups appearing in the space and using the opportunity to help people due to the recent and upcoming changes in regulations," Drokova said. She added that the category could follow a similar trajectory as legal cannabis, an estimated $19 billion industry in the US.
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