Venture Capital Tech – Reflections on 2020 & Predictions for 2021

David Blumberg, Founder & Managing Partner, Blumberg Capital

It’s safe to say that the year 2020 didn’t turn out as expected. This year will be remembered as a signature year in American history alongside other pivotal years like 1860 (onset of the Civil War), 1941 (onset of WWII) and 1918 (Spanish Flu pandemic).

The lockdowns caused by the COVID-19 pandemic forced businesses to adapt and will continue to shape business strategies in 2021 and beyond. American society and the larger world economy endured years of difficulty and accelerated change during the months of the pandemic. While an unwelcome event, COVID-19 was a significant catalyst for digital innovation – especially virtualization – this year.

While no one could have predicted the course of events in 2020, we decided to review some of Blumberg Capital’s predictions from last year.  Across the tech ecosystem, let’s take a look at what transpired in 2020 and what’s in store (or online ) for 2021.

• Healthcare: Based on ai healthcare data we had collected for the 2019 Blumberg Capital AI in Healthcare survey, we predicted that AI would spur improvements in healthcare. Startups continued and accelerated development of innovative AI-based solutions to providers and consumers for better diagnosis, treatment planning, care delivery, aftercare support (including digital telemedicine), as well as streamlined processes for sharing medical records and making payments.

The COVID-19 pandemic brought the need for telemedicine to the forefront. Federal government deregulation enabled cross-state licensure for medical professionals, which helped realize that dream. Another positive trend was more broad-based acceptance for AI-enabled medical platforms and solutions. Ferrum Health deployed it’s solution for preventing medical errors starting in the radiology departments of major hospital chains. The AI platform reviews 100% of radiology scans to find diagnostic lapses and errors, saving lives, money and time. We even coined a new KPI – ROL (Return on Lives).

At a broader level, Segmed launched a cloud-based platform that provides high quality data for training medical AI models. The company also innovated a new business model whereby it serves as a marketplace for aggregating structured, labeled and anonymized medical data for use by researchers and for product development (read more here). In 2021, we will continue to see a wave of startups targeting the healthcare industry, more healthcare organizations implementing and integrating new digital solutions and much greater public acceptance.

• FinTech: We predicted that in 2020, we would see more partnerships form between fintech startups and large financial institutions. JP Morgan’s $2 billion venture fund, Visa’s acquisition of Plaid and Jack Henry’s strategic partnership with Lendio to facilitate PPP loans illustrates that this trend will continue.

Blumberg Capital’s recent fintech survey of consumer behavior and attitudes on financial technologies found that the COVID-19 lockdowns accelerated consumer use of fintech solutions and decreased their use of cash substantially. Since fintech solutions are helping mainstream consumers adapt to rapidly changing demands in many areas of their lives, it’s likely we will continue to see widespread fintech growth next year.

• PropTech: Last year, we predicted that the next housing downturn may be less severe because of new proptech innovations that ensure more flexibility, faster transaction times and new paths to liquidity for homeowners. While the first part came true, it was not only due to proptech innovations, but also due to a larger trend of de-urbanization and greater flexibility on the part of employers about remote work policies.

The housing market will not revert back to where it was pre-pandemic. In 2021, we will continue to see a shift away from urban centers to suburbs and rural areas, as some people become reluctant to live and work in expensive, dense cities with rising crime rates. We will see a proptech expansion – rather than recession – as owners try to reduce costs and increase operating efficiencies while consumers, hunkered down, invest more in their homes, which have become the new office.

• Cybersecurity: We predicted last year that there would be continued consolidation in the cybersecurity industry due to CISOs wanting to better manage their cyber operations with fewer vendors. Despite the COVID-19 pandemic, this came true. Research shows that as of November 2020, cybersecurity mergers and acquisitions were on pace with 2019.

In 2020, the surface area of attack increased greatly due to remote work and the use of multiple connected devices by individuals utilizing connectivity for work, school and home requirements all at once; this will continue into 2021. The need for higher bandwidth was one of the revelations of the new normal, portending great demand for 5G deployments across the country. CISOs will need to be more diligent than ever to protect against security vulnerabilities across a much wider and more diverse attack surface area.

• Mobility, Transportation & Smart Infrastructure: Our prediction for 2020 was that the automotive industry would transform from product-centric to service models and that municipalities would increasingly seek to add smart infrastructure, software and hardware as parts of their public transportation network. We also predicted better integration, maintenance and usage of alternative modes of transportation such as scooters, bikes, shuttles, ride-shares and carpools.

Of course, the COVID-19 lockdowns stymied use of certain categories within the mobility sector but may have been an indirect spur to innovation. For example, we think that there will be an increased demand for individual transportation units and flexible transportation solutions. This will continue even after wide availability of vaccines because there are likely to be other pandemics in the future that call for similar safeguards. In addition, municipal transportation authorities and companies, employers and individuals will seek safe, low-cost, healthy and sustainable mobility choices.

And now for a couple of new predictions for the venture capital tech ecosystem in 2021…

• New tech hubs: The waning days of 2020 saw an accelerated movement of companies, investors, entrepreneurs and tech talent to new, emerging tech hubs such as Miami, Austin, and Nashville. This trend will continue in 2021 supported by remote work flexibility, high cost of housing in traditional tech hubs, burdensome regulation and taxation, and lifestyle choices.
• Supply Chain & Logistics: 2020 also is notable for a change of attitude on the part of manufacturers and importers about supply chain dependence, particularly on China. The 2021 continuing trend will be for diversification of supply chains to other countries, particularly in South East Asia and the Western Hemisphere. Within the tech innovation realm, 2020 saw increasing adoption of new software from startups by large, traditional freight forwarders, carriers, importers, exporters and the entire supply chain ecosystem.
• The Biden Administration’s impact: Based on our limited knowledge of what is known so far, it seems likely that the incoming administration will seek to increase demand for and investments in “clean tech” and impact investing.

They are also likely to increase budgets in support for traditional education and training programs. Finally, there will likely be a clarification and codification of regulations for the drone industry and related services such as package delivery.

• Strong IPO and M&A markets: We are likely to see strong equity capital markets in 2021 with a robust stream of companies already in the queue for public offerings (both traditional and SPACs). In particular, SaaS-model companies are receiving a very strong reception by the public investor community. M&A transactions will be supported by pent-up demand, strong corporate balance sheets, high stock valuations of acquirers and low interest rates.

Conclusions for 2021

In what may be a surprising finding, Deloitte reported that the cloud market grew faster in 2020 than in 2019 driven by COVID-19 lockdowns and the work-from-anywhere, no-touch employer policies. With this background, the continued acceleration of the virtual enterprise in 2021 is almost a certainty as companies invest in virtual technologies to save money, become more agile and drive innovation.

While the pandemic caused unprecedented business disruption in 2020, the welcomed new year of 2021 will bring continued acceleration of economic recovery and return to normalcy. Most importantly, resilient entrepreneurs will benefit from having used this time to create or further develop products expertly positioned to better serve their customers. While we regrettably learned the danger of human-to-human transmission of a virus, we saw the positive power of human-to-human transmission of new ideas, better technology, resilient business models and common human empathy.