A personal view on Venture Capital - Opinions, Research and News about Corporate Venture Capital.
Thomas Grota was Investment Director at the Corporate Venture Capital firm of Deutschte Telekom AG. With his entrepreneurial spirit he supports startups and new entrants to establish a successful business and grow shareholder value.
As a Venture Capitalist he exited Swoodoo to Kayak.com, Apprupt to Opera Software, 6Wunderkinder to Sequoia Capital and myTaxi to Mercedes Daimler AG as well Content Fleet to Ströer AG.
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It’s the time of the year to make some predictions for the techworld in 2017. But first: look back on 2016 predictions just make it quick:
The end of the unicorn era > Got this right. Companies will still grow to a unicorn valuation, but not driven by investors to increase book values and collect billions of capital. Trivago, Snap and Skyscanner grow to that valuation due to their business models over time not by investors money. Gambling on high stakes is not the focus of hedge funds, PEs and corporations anymore.
Corporate investments will change > Got this right. Looking at VW (300m in gettaxi), GM (500m in Lyft), Softbank (1bn in OneWeb) or Panasonic (256m in Tesla) show the way how corporations are investing today. No seed or A-round investments to be seen lately.
Internet giants take over the commodity > Got it right as well. Amazon takes on Video, Apple takes Music inkl. Hardware (Beats), Microsoft takes Productivity. There are still exceptions like Netflix, Spotify, Slack but 2017 will show if those will survive or been taken over when losing the battle is near.
Technology will overtake common expectations > not obviously right. Looking at Siri, Alexa/Echo, Cortana and Windows 10 shows mainstream for voice operations. Tesla showed the way for autonomous driving in practice. A lot of AI is in the background of most service from facebook to banking. Most of their users were not expecting how fast technology is taking over — even in generating fake news and twitter bots during US elections.
Law makers will need to handle the mess > right but not on time. Technology forces law makers to look deeper into technology services. From autonomous driving to banking APIs to Internet spectrums out of the sky and net neutrality — regulators are getting a lot of work to come up with solutions while the technology is pushing on high speed into consumer spaces. We haven’t seen the results but law makers did not have a long holiday season for sure.
So it looks like 5 out of 5 — done for 2016. Now let’s head over to 2017
1. Everybody gets a “Jeanie in a Box”
In 2016 we have seen the raise of Echo/Alexa in living rooms. Google home is the first to follow but not the last. Wait for Siri, Cortana and others to be put into a small box to live on your counter. Maybe Apple will use Apple TV and Microsoft Xbox One as a first way into your homes but sooner or later those smaller or larger cylinders will enter your house. Some companies will offer white labeled solutions so the likes of Sony, Samsung and LG will also enter the crowed market. Without an always on assistant in a smart home an Internet platform will have problems to compete. So Tencent, Alibaba and Baidu will enter the space as well. Amazons numbers rose by 9x year on year for holiday season in selling Alexa devices — still nothing compared to the numbers it will sell in 2017. It will be massive and as well discounted by bundles with Music, Video, Prime and other services. A huge user based attractive for all mobile first companies. So the next big thing is “assistant first” for developers. Next to the “messenger app stores” we will see around facebook, WhatsApp and WeChat.
There is no difference between a messenger bot and a Assistant skill. Its an API enebaled connection to a user service without a UX/UI in an App or Browser. Many services already joined this new world: Uber, myTaxi, Spotify, Philips Hue, Sonos and many more. Those services provided by the Internet giants are enabled for those boxes by default although mostly for their own boxes. Which will make life even harder for those services. When streaming music is not differentiate by catalog and price and curated playlists it will by not be integrated with the most dominant boxes. It could be the return for Spotify if Amazon would block Apple Music from their Echo and Alexa. Same is true for Google Music and Google Home. Apple being late to this game could harm Siri Adoption, Apple Music, iTunes Video and ultimately AppleTV and iPhones. Imagine the Apple stock sinking because Tim Cook did not act fast enough on this part of hardware development. Software eats the world? — yeah not so much.
Service integration of Alexa devices in Germany
3. TV viewing is an App
Same as we seen a phone became an app and texting and music or video this will be the next victim of digitization. People will watch TV through various apps and mega apps. With a smart TV and services like Zattoo I have a live TV out of the box as soon as my Internet connection at home is setup. Every major broadcaster has an app for their content to be watched later on in a mediathek. But we are not using live TV so much anyhow. News is on Twitter, Gaming is on consoles and apps. Movies/Soups are on Netflix, iTunes, Amazon, Hulu, Showtime and Music is on Spotify, Amazon, Apple. The only missing piece is major sports which will move to apps as well. Currently most of the apps by ESPN, Sky, Canal+, etc. are banned from SmartTVs and FireTV because cable providers would be out of business instantly. They actually live off from sport subscriptions as part of their offerings. With ending the currents contracts by national leagues this world will end. The next round of bidding will see Amazon, Apple and Google enter the rounds and will out-cash the traditional bidders. In certain countries this will have an impact on the adoption of the boxes by certain vendors but it will clearly harm the cable companies.
NHL on Apple TV
4. IPO Race in 2017
So the discussion of tech bubble or not will come to an end and with that the race to IPOs will bring closure. There will be two types of companies in 2017: the ones who make it to the IPO like Snap, Appnexus and others. A significant part of successful IPOs will be from Europe such as Karma and Spotify. The other type of well funded companies will not be able to raise money in unicorn rounds and therefore seek the future in acquisition or just sliding out of business and their assets will be picked up like the ones of Jabowne. Will be interesting to see which group Uber will be in.
5. The unknown Future
There are three mayor events which are hardly to predict but which will have an important impact: Trump, Brexit and Germany.
a) Trump: We don’t know his stand on immigration, netneutrality and regulators. With a tied immigration politic he will have an impact how Silicon Valley will develop. It could cause a mayor downturn on the talent war in California and will slow down innovation and new products being developed. His stand on netneutratlty could cause an increase power to telcos, media and dominate Internet companies. If those could offer free services within their walled gardens there is a whole new game in the US. His guidance for regulators could impact on short term a push in megadeals like T-Mobile/Sprint merger or similar deals. Creating such mega companies combined with netneutrality models could severly harm the ecosystem for new startups in the US and therefore midterm for the rest of the world.
b) Brexit: If the UK will push the plan for leaving the EU it will be the end for the London startup system as we know it. It will be a hard Brexit and it will be done in a short time frame with focus on areas of business more related to traditional businesses than on startup companies. At the end the brain dead for the UK to Ireland, France, Germany and Nordics will increase until there are no more important UK startups left with a London based HQ.
c) Germany: There will be elections in Germany in September. When the current political coalition will discontinue the overall German position in immigration, EU financial rescue and corporate tax strategy will change one way or the other. With Germany changing its course the impact on the rest of Europe will be seen in the rest of Europe. This will lead to more disintegration of the EU and changing of trade deals for the future. Startups will have more challenges to setup their services across borders and financial systems in midterm. This will drive investors to become more careful and more funds will be needed for counsels rather then tech development.
Voting polls in Germany in 2016
6. The war in Syria
Recent developments in Syria will mark a turning point for the region and Europe. The refugee crisis will change from an European wide to a more regional spread crisis. It will also encourage people who left Syria in 2015/16 to return to their homes in 2017/18. With the shifts of political power in the region it will push the ecosystem in Iran to a more prominent level. Iran could become the next India with accelerators and IT business parks growing in a significant rate over recent years. In a world with weakening UK and Europe in terms of Startup supporting environment Iran and Israel are the remaining tech hotspots around. Those will attract the most significant parts of global VC funding to be invested abroad. Again this will drive acquisitions in those areas which will fuel the ecosystems even more increasing the distance ahead of Europe. Increase the limits for immigration across Europe by new elected or existing governments in France, Hungary, Poland and others will even more harm the open minded startup spirit in those countries.
GDP compared of US and EU Zone
7. The end of Corporate Venture Capital as we know it
All those changes will lead to decisions by most corporations to stop their venture capital activities. There are still some coming late to the party but the dominant trend will be the shutdown of corporate VCs in a broader perspective. Corporates will still be active in the investment scene to support startups but not by traditional VC investments in early rounds. Most of them will hand over the seed and early stage investments to external funds. They will use the dealflow for innovation screening but not as an active investor. In growth stage they will evaluate investment rounds but rather as a dominant shareholder outside VC terms. The leading VCs will line up to enter internal demo day events to present their companies for partnering. Founders will learn that they can not expect fair terms for direct investments and will abandoning pitching to corporate manager at all. Traditional VCs need to make much bigger bets on their portfolio and hope for larger VC funds from abroad. They don’t need to compete with unreasonable valuations offered by inexperienced CVCs but the they will need to provide bigger pockets to reach a profitable exit of their investments.