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From 5G to GenZ: Investors Weigh in on New Trends in Venture Capital
Throughout each of the past several years, the venture capital landscape has been characterized by one or two pivotal trends. From the sharing economy to artificial intelligence to user-generated content, each of the past several years has been largely defined by one or two major wave movements.
But 2019 has been somewhat an anomaly—no single trend has dominated. This became more apparent as I trekked the globe attending conferences in US, Canada and Asia.
Earlier this summer I got the opportunity to speak at the Rise conference in Hong Kong, the largest tech conference in Asia. One particular noteworthy panel session involved Harry Man of Matrix Partners, Jing Ulrich of J.P. Morgan, and Nisa Leung of Qiming Venture Partners. The consensus with respect to 2019 was clear—there's been a noteworthy change in investing sentiment in 2019 and a lack of a dominant theme.
This new landscape need not signal a doom-and-gloom reality for investors. On the contrary, it levels up the game and calls for investors to look deeper to discover whitespace opportunities. The billion or multi-billion dollar question, then, is what are these whitespace opportunities?5G
Looking forward, one of the most promising opportunities for venture capital investment is 5G technologies and applications. Both the Chinese and the US government have signaled that 5G is a strategic priority. In the US, 5G has been cited as an infrastructure priority in a national security report released by The White House. And in China, the country has already issued 5G licenses to China Telecom, China Mobile, China Unicom, and China Radio and Television for the commercial rollout of 5G.
The promise of 5G technologies is unprecedented. In terms of download speed, 5G is slated to outperform 4G technology by 100X. It will also reduce latency, enable energy savings, and drive cost reductions.
Ulrich was especially bullish on healthcare applications made possible by 5G—especially in China. In China, there is a drastic shortage of doctors with only 1.8 practicing doctors for every 1,000 citizens—significantly lower than the 2.6 rate in the US. Ulrich explained that 5G makes it possible for robots to perform diagnoses and, thus, liberate doctors to spend more time on duties such as psychological care and emotional support—"things that AI can’t do”, according to Ulrich.
The next social network.
To many onlookers, Facebook has been seen as “too big to fail”—a behemoth that can't be overshadowed. But due to a slew of trust and privacy faux pas in recent years, sentiment around Facebook has changed markedly. According to Edison Research, there are approximately 15 million fewer US Facebook users today as compared to 2017.
Many venture capitalists are eager to invest in startups that can capitalize on Facebook’s missteps and find a lucrative niche to assert dominance.
Facebook’s dominance was a key theme at the Collision 2019 conference in May. At the conference, Rebecca Kaden of Union Square Ventures, Seth Rosenberg of Greylock Partners, Nikhil Basu Trivedi of Shasta Ventures, and Alex Taussig of Lightspeed Ventures joined together for a lively discussion about Facebook and potential upstarts looking to gain critical market share.
Kaden was especially excited about the opportunity at hand. She explained, “For the past decade, we’ve believed that it’s impossible to compete [with Facebook. But that’s changed in the past 12-18 months]. We may be connected, but we’re not fulfilled….Connection alone isn’t building the kind of community that we seek…Building community is more complex than building a network. And that screams opportunity to me…There are splinterings and there are… what we call start up-sized holes that are emerging that can let new entrants really run.”
But what will tomorrow’s social network look like? Both Rosenberg and Taussig see enormous potential in mobile gaming companies. For Taussig, Roblox is an especially strong contender. The kids gaming platform recently surpassed 90 million monthly active users—a significant uptick from 70 million last fall.
What makes the Roblox opportunity so compelling isn't its growth. Rather, it's the potential to encourage real, healthy connection and interaction between users. When Rosenberg and team were conducting due diligence on the company, they contacted users to ask about their experiences. The team discovered that the connection users established on the Roblox was so strong that older users were actually paying for clothing for younger players so they wouldn't "feel left out" when starting out on the platform. What's more, Roblox has also launched a digital civility initiative to help ensure online safety and is working with safety leaders to build a safe playing environment.Gen Z applications
Almost every market is feeling the impact of the rise of Gen Z. I have written before on how they will take a different path from Millennials. Gen Z, defined as individuals aged 18 to 24, comprises more than a fifth of the US population. And by 2020, the demographic is expected to represent 40% of all consumers and influence nearly $4 billion in discretionary spending.
The opportunity for startups to capitalize on the dominance of Ge Z is vast. But startups need to recognize that the demographic is a unique breed, unlike past demographics. Notably, they are digital natives who are online “almost constantly”.
The rise of Gen Z was central to a panel session at the recent Collision conference. During a session that involved Jean Francois Marcoux of White Star Capital, Cheryl Cheng of BlueRun Ventures, and Robin Li of GGV Capital, all panelists agreed that the rise of Gen Z presents new opportunities for startups, especially those that focus on selling experiences.
Cheng cited one especially promising niche area for startups keen to gain the attention and interest of Gen Z—mental health. She explained, “This generation feels more mental and emotional pressure than any generation before.”
Indeed, Gen Z is 27% more likely than other generations to report their mental health as fair or poo4 and are 37% more likely to report having received treatment or therapy from a mental health professional. Since Gen Z, "self medicates on media", according to Cheng, startups need to find a way to intervene in a way that feels natural to them.
Given the rise of Gen Z and the enormous untapped opportunity at hand, it's not surprising that investment in mental health has escalated. Whereas in 2009, a mere seven startups received venture funding. Today, that number has grown manifold.
For Cheng, the startup Blue Fever has unprecedented potential to improve the mental health of GenZ. The company, a Techstars graduate, has built an empathetic ai engine that sends videos to users based on their moods.
The investment landscape has, without doubt, experienced unprecedented change. Investors are needing to look deeper. By looking more acutely at the trends that are materializing, investors can assert a competitive advantage. The onus is also on startups to prove themselves in ways they haven't needed to in recent years. They not only need to talk the talk, but they must also walk the walk.