By David J. Blumberg, Founder and Managing Partner at Blumberg Capital
Two years ago in March 2020, a strange new reality dawned for individuals, families, businesses and the economy. Together, we navigated the harsh impact of lockdowns starting with shock and adaptation, then with resilience and innovation. While acknowledging the pain and suffering of so many, the COVID pandemic also served as a Catalyst Of Virtualization, Innovation and Decentralization, accelerating our societal migration toward a more virtualized mode of living and working.
The number of U.S. startups that received seed funding reached an all time high in 2021 and that may explain part of “the Great Resignation” that began during the lockdowns. With this transition, key markets and industries are undergoing sustained, structural transformation and 2022 will be a critical year in maturation and adoption. Entrepreneurs are collaborating with developers and scientists to build new businesses aimed at solving the problems of today and tomorrow.
Healthcare – Machine Learning: Greater Acceptance and Progress
The ongoing digitization of healthcare will reward medical providers, payers and patients with new ways of leveraging data to improve diagnoses, treatments and outcomes by improving accuracy, streamlining processes and reducing costs. Improved well-being, value, scalability, and speed are all top of mind. As the integration of new sensors and applications generates tremendous amounts of data, a growing number of healthcare systems will deploy AI and machine learning solutions for prevention, diagnosis, treatment, and long-term care. An example is Ferrum Health which utilizes AI algorithms to automatically and inexpensively scan hospitals’ radiology diagnoses as a “second opinion” for quality assurance, error reduction, risk mitigation and training purposes vs. the 1-3% review rate which is more typical at hospitals today.
Venture Capital – High Valuation Seed Rounds Don’t Guarantee Success
All stages of venture capital have expanded funding volume rapidly in recent years with total VC investments up 100%, seed funding up 70% and corporate VC funding up 250% in 2021. Traditional late stage and IPO investors moved aggressively towards earlier investment rounds as they feared missing out on rising valuations of the past decade. Some large growth funds and multi-stage VC funds have raised unprecedented, massive new seed funds where the strategy is to make many bets well before product/market fit has been achieved. While this mass seed funding approach may afford late stage investors early access and “optionality” for future larger stakes in potential market leaders, we will soon see its limitations. The influx of new capital at high valuations, and often with relatively little due diligence, has created unrealistic expectations for many startups. More than ever, founders must think long term and strategically when evaluating trade-offs relating to early-stage investors, capital and valuations.
Geography & Talent – More Migration and the Maturation of Emerging Tech Hubs
Lockdowns spurred the biggest migration of entrepreneurial and tech talent in a generation. With greater freedom to work virtually, individuals, enterprises and investors uprooted from traditional centers of innovation and finance such as Chicago, New York and San Francisco. In 2021, one percent of the population of California, New York and Illinois moved – primarily to Texas and Florida. As these early adopters integrate into their new communities, the word is spreading about the benefits such as housing, schools, safety, transportation, low taxation and lifestyle. We expect this viral effect to influence others to make similar moves, resulting in a more decentralized talent base for the tech ecosystem. We are also seeing hiring of remote workers across international borders become more of a norm and not the exception. Given the persistent tech talent shortages pre and post pandemic, this is a positive development that will lead to fewer bottlenecks and faster growth.
FinTech – Hybrid Between Physical and Virtual Will Become the Norm
Many aspects of financial services have shifted towards a high tech/high touch hybrid model whereby commoditized, discrete transactions are automated, while high value, relationship-based interactions remain person-to-person. The tough decision is striking the right balance between digital accessibility and cost vs. human touch and trust. In 2022, we will see more adoption of the new hybrid model. More extensive and sophisticated fintech solutions will also be embedded across numerous other industries including, healthcare, retail and logistics, creating new opportunities for growth.
Blockchain, DAOs, Tokenization and Web3.0 are the Natural Evolution of Enterprise Software
These emerging technologies are real, meaningful and will have a powerful and expanding impact across many verticals for decades to come. We see them as natural extensions of enterprise software, adding and embedding new concepts of smart contracts, decentralized administration, and shared unit economics, enabling novel business models and applications such as NFTs and the metaverse. Visionary entrepreneurs and talented developers are flocking to this realm. Corporate CIOs will also hire more crypto developers and invest greater resources in these emerging infrastructure technologies. The application of blockchain technology has moved well beyond its best known use in cryptocurrency and has broadened its utility to address a wider variety of applications. The venture capital community is learning to embrace the crypto realm with greater agility and fluidity to help fuel much needed innovation. It’s about time.