2020 Startup Predictions: Top trends to watch out for
Kjartan Rist for Forbes
As we say goodbye to the 2010s, the European startup sector can feel proud of another record year for investment, as founders all over the continent start to challenge the US and China for building innovative, scalable businesses. Despite the shadow of Brexit and some economic uncertainty, clever business ideas have continued to come thick and fast, and there has been no shortage of funds and appetite to help maximize the best opportunities.
Having said that, the global picture has been a little less positive, with growth appearing to stagnate in the traditional startup hotspots and a few of the biggest names seeing their stars and valuations fade in recent months. All in all, 2019 has provided plenty of lessons for businesses and VCs to take into the 2020s, as technology, and what it takes to build a successful business, will continue to evolve.
With that in mind, here are some of my top predictions for the startup and VC sector in the next 12 months:
CAPITAL EFFICIENCY WILL BE KING: Investment rounds have risen steadily over the last few years, with average seed valuations reaching a median of between $7m and $11m in the first quarter of 2019, making these businesses more akin to the Series A startups in the past. But having seen a number of the world’s biggest startup success stories slashed in value over the course of the year, it has become clear that, in some cases, a lot of capital has been wasted on ineffective business models and unsuitable founders – and not just at the top level. As such, in 2020, VCs will increasingly be looking for strong unit economics, underlying profitability and a good grasp of the fundamentals before making significant investments. Maxim Kostenko, VP of Product at the fintech, Pockit believes that customer acquisition strategies will key to attaining the higher quality growth and a lower burn rate that investors are looking for. “Given that the cost of paid acquisition has been increasing steadily in recent years, private markets will be looking to invest in the companies that can show a) how they can acquire and retain the right customers at scale, as opposed to signing up any customers; and b) finding and scaling underpriced acquisition channels,” he says.
CULTURE ACCOUNTABILITY: The startup sector might have become famous for its high pressure, long hours, ‘move fast and break things’ approach, but founders are starting to realize that encouraging an all-out ‘hustle culture’ can be counterproductive to building a successful, sustainable brand – not to mention attracting talent. Hence, in 2020, we’ll see more startups showing their human side and becoming more open-minded about recruitment and HR policies. Kenny Alegbe, Co-Founder and CEO at Home Hero, says this transparency can be used as a competitive advantage rather than a weakness. “With this increasingly ‘open’ interaction between brands and consumers comes an expectation for companies to live up to topical discussions around mental health, diversity, and wellness as a whole,” he says. “Startups will look to invest more in bringing good practices to light (or creating them), as well as making strategic hires in these fields – and marketing this!”
SPOTLIGHT ON ‘BACK-OFFICE INDUSTRIES: They might be considered ‘digital laggards’ compared to faster-moving B2C sectors, but the tide is now turning and ‘back-office’ B2B industries will see considerable change and present big opportunities in the coming 12 months. Areas like insurance, logistics and industrial technology have been slower to capitalize on existing and proven tech than their consumer cousins, which means that there are still plenty of opportunities to develop truly disruptive ideas and build enormous companies. One element of this will be the introduction of blockchain to some of these more traditional sectors, with clear business models starting to emerge. For example, in asset management to remove manual processes and improve efficiency in trade processing and settlement, for claims processing in insurance, or in supply chain management alongside sensors to ensure you’re capturing accurate and specific data.
A RENAISSANCE OF OFFLINE BRAND BUILDING: Most startups have become obsessed with online marketing in recent years, thanks to its ability to target niche audiences cost-effectively, with the help of growing volumes of data. But, as the costs involved in digital tactics increasingly eat into startup ROI, and as audiences become savvier about the thousands of messages being flung at them from all angles, offline is gradually reasserting itself as a way for brands to differentiate themselves from the competition. Patrick Borre, CEO of event platform Billetto, believes this trend will become even more pronounced in 2020: “With the tightening of online privacy regulations, such as GDPR, and increased focus on non-legal marketing practices, my prediction is that live business events, conferences and meetups will become more powerful as a way to build new relations and grow commercial activities.”
MICRO-MOMENTS: But that doesn’t mean that online is going away. In fact, according to Home Hero’s Alegbe, consumers are expecting an even more faultless customer experience from digital services, expecting them to anticipate and respond to ‘in the moment’ needs. He says: “Consumers will increasingly expect to be able to have quick, useful interactions with brands during decisive or impulsive moments. If, as a company, you’re able to adapt to this expectation – and be there when these moments occur – you will be able to build tools that people start to rely on and build into their habits.”
IOT IN THE SPOTLIGHT FOR INVESTMENT AND SECURITY: Gartner predicts that 20.4 billion objects will be connected to the internet by 2020 and the number is set to keep on rising, as the IoT enters every area of our lives. While the focus up to now has largely been on lifestyle solutions, we’ll see an increasing number of professional and industrial applications being adopted, ranging from healthcare to logistics and manufacturing. This will spark even greater VC interest, alongside a renewed focus on solutions that keep these billions of network entry points secure. “While the IoT could be transformative for people and businesses, it will also come with new risks,” says Mai Fenton, VP of Marketing at Digital Risks. “Connected devices are a hacker’s dream because by accessing the weakest technology in the chain, they can infiltrate wider networks. So, with the new possibilities of the IoT, will also come new concerns, and businesses should make sure they have appropriate security measures and protocols in place.”
CO-WORKING GOES BACK TO ITS ROOTS: The coworking industry has had a tumultuous year and consumers and investors, jaded with the homogenous nature of some parts of the sector, will be looking for something more authentic in 2020 and beyond. Gabriela Hersham, CEO, and co-founder of the coworking space, Huckletree, says the key is to focus on personalized experiences and building meaningful communities: “People are increasingly skeptical and tired of the generic, standardized, big machine of workspace provision and I believe they will be looking for something more intuitive, tailored and neighborhood-like to allow them to grow personally and professionally at their pace and on their terms,” she says.
BANKING SHAKE-UP MEANS OPPORTUNITIES FOR FINTECH: European banks have been going through a period of change and reflection ever since the financial crisis and things look to be coming to a head. But, according to Ulrich Schmidt, CEO and Managing Partner at Scala Ventures SA, the challenges facing traditional institutions could bring fertile ground for a new wave of financial innovators. “The ongoing shake-up of the European banking sector will cause crisis, disruption but also new opportunities for startups,” he says. “Government and corporate over-indebtedness, volatile currencies, inflation risks and a lack of focus on consumers and mass markets will continue. This will strengthen demand for the fintech sector, particularly crypto technologies, as well as B2C business models and platforms.”
All in all, there is plenty to be optimistic and excited about as we enter a new year, not to mention a whole new decade. The coming of age of the European startup sector has been one of the stand-out business stories of the 2010s and, as the sector matures and benefits from a virtuous cycle of success, there are plenty of opportunities to be had in the coming 12 months.