Term Sheet Readers Predict a Bigger Focus on Profitability, Inclusivity, and Ethics in 2020
Each December, Term Sheet readers submit their top business predictions for the upcoming year. For 2017, readers predicted that there would be “irrational exuberance” in the markets. Bitcoin and cryptocurrency predictions were all the rage for 2018. And 2019 was sure to bring doom and gloom in the form of a recession that never quite happened (but is still on the horizon).
According to reader predictions, 2020 will be a wild ride. People are bullish on innovations in blockchain technology, artificial intelligence, and climate tech. But they’re not so sure about the startup mega-rounds we saw in 2019, the frothy valuations, and the traditional path to IPO.
Let’s see what the 2020 crystal ball has in store. Below are your predictions:
VENTURE FUNDING & VALUATIONS: Term Sheet readers predict less frothy valuations in 2020.
“We will see more WeWork-like valuation drops for VC-backed unicorns that aren’t turning profits.” — Phillip
“I believe there will be an acceleration in large investors (foundations, pensions, big family offices) mobilizing more capital into earlier stage investing, but doing it outside the ‘conventional’ venture model — adopting more of an index investing/capital allocation model.” — Joe
“Currently we are experiencing record highs in private markets for both valuations and dry powder on hand. I think there is a very real chance that we have a pause in deal activity next year in absence of a recession. In my opinion, there larger PE mergers will wait vs. agreeing to looney tunes transaction multiples, lack of activity, in tandem with fees being assessed on committed capital, creates a serious drag in performance.” — Owen
“This was a year of grounding in Silicon Valley where growth for the sake of growth is no longer enough to drive the validity of large-scale valuations. There will most likely be more scrutiny on mega-rounds and less frothy valuations in the future. Startups will have the prove themselves against path to profitability. The public market has undergone more scrutiny this year – and the private sector is starting to follow suit.” — Assaf Wand, CEO of Hippo Insurance
“We’ll see radical shifts in how venture capital is raised and deployed and an increased focus on a consortium-based model of VC that helps corporations and industries address innovation in a more thoughtful and durable way.” — Brendan Wallace, co-founder & managing partner, Fifth Wall
“With 2/3 of all wealth in the country being controlled by women over the next five years, 2020 will mark the official ‘Rise of the Female Economy.’ We’ll see more women leaving established companies to start their own businesses and more investors putting capital behind women-led teams. — Suzanne Norris and Lori Cashman, general partners of Victress Capital.
“The venture capital market has long been ruled by ‘top tier’ VC firms that can raise very large funds and deploy capital across various stages of a companies’ lifecycle. This year we will see newer venture models succeed and emerge as the investors are able to provide value to founders and provide strategic expertise for certain business and growth pains points where they are “experts.” Due to continued success of their underlying investment strategies, several micro-funds will transition from ‘emerging managers’ into ‘brand name’ firms.” — Jordan Nof, managing partner at Tusk Venture Partners
IPOs: Readers predict that founders will increasingly choose direct listings over traditional IPOs.
“In 2020, we will see more companies choose to go the direct listings route, as opposed to IPOs. The lack of dilution for cash-rich companies, the ability to get faster liquidity for VCs who have seen the time to exit lengthen, the emergence of financial institutions to shepherd companies through the process and the potential banker cost savings may prove too good to pass up — especially for the more household name tech companies.” — Arjun Chopra, partner at Floodgate
“Expect more high-profile direct listings, as the practice becomes far more common year-over-year.” — Trinity Ventures general partner Karan Mehandru
… Readers also predict that profitability will prevail over growth at all costs:
“During the last year, it seems like the private markets have lost their way and the public markets have been more disciplined. The focus has been on growth at all costs, which is a shame because a lot of the mid-sized offerings, have largely come and gone. In 2020, we’ll see a return to a more balanced growth and profitability structure in the companies that do go public. In fact, I think we will see more lower-growth companies with core profitability going out than we would have historically. Ultimately, a greater number of IPOs with $5B market caps will create a much healthier, deeper market than a handful of high-flying companies with $100B caps.” — Jason Green, founder and general partner at Emergence Capital
“IPO market will remain open in 2020, especially for enterprise software companies. Wall Street investors will recognize the value of tech companies with sound business models and positive unit economics over growth at all costs.” — Silicon Valley Bank CEO Greg Becker
“With multiple failed or postponed IPOs in 2019, we’re beginning to see a major shift in the public market’s perception of many privately-funded tech startups. Public markets are shifting away from driving growth at any cost, and instead are increasingly expecting businesses to demonstrate efficiency when they go public, which will have a trickle-down effect as many businesses prepare to grow and scale.” — Sean Knapp, founder and CEO of Ascend
“In 2020 I think we’ll see fewer companies and entrepreneurs using the “move fast and break things” model. While this ideology has never worked in financial services, we’re seeing that it is having continued negative repercussions for big tech. With privacy and regulation becoming a top concern for consumers, more companies will be pumping the breaks before launching into new business plans. With behavioral, technological and industrial shifts happening constantly all around us, I believe that in 2020 we will see more companies weighing their next move before jumping into a product launch, IPO, or brand pivot. — Ramneek Gupta, managing director at Citi Ventures
“More beloved, cash-burning, growth-at-all-costs private companies go public and stumble after their IPOs. This doesn’t stop venture capital managers from deploying more capital in mega-rounds than 2019.” — Grady
“Venture Capital will reduce its focus on growth at all costs and businesses with balanced growth and solid unit economics will garner the highest valuations.” — Mike Myer, CEO and founder of Quiq
“Venture investors will be less concerned about being ‘founder friendly’ and more focused on being ‘company friendly.’ A deference to founder-control (dual share class, blocking rights, board control, etc.) will be replaced with greater sensitivity to all constituents: founders, employees, customers, and shareholders.” — David Golden, managing partner, Revolution Ventures
CULTURE & CORPORATE GOVERNANCE: Readers expect a bigger focus on corporate governance, employee rights, and inclusive cultures.
“There will be an increasing understanding that ethics and corporate governance really matter,” — Megan Bent, founder and managing partner of Harbinger Ventures
“In the wake of WeWork, venture funds will focus more, and give less, on governance and appropriate board controls in even the more exciting deals.” — Ben Narasin, venture partner at NEA
“A lot of services have cropped up in the last year to capitalize on employee rights issues — in the form of technology-enabled harassment reporting tools, HR trainings, and even empathy coaching. We’ll see a portion of employees choose humane culture over name-brand in choosing where they want to work. And some progressive companies will change their policies around severance, dispute resolution, salary bands, and promotion policy in order to adapt to employee desires and also mitigate legal action or reputational issues.” — Ariella Steinhorn, founder of Lioness Strategies
“CEOs will add public policy to their job descriptions, as consumers desperate for change and frustrated by Washington’s gridlock look to business leaders for progress. Even previously apolitical big company CEOs will reluctantly oblige, determining that stepping outside the traditional boundaries of business to address popular topics like gun safety and climate change is worth the risk if it helps to stave off populist, anti-business momentum.” — Patricia Nakache, general partner at Trinity Ventures
M&A: Readers predict some major acquisitions in the coming year.
“Apple acquires Tesla.We’ve been hoping this happens for years. If Tesla’s Model Y, Chinese Gigafactory, or Elon’s twitter account have any issues, it could become a crisis for Tesla. That could be Apple’s opportunity to acquire Tesla for cheap, finally bringing the world the iCar.” — Jack Kramer & Nick Martell, authors of Robinhood Snacks
“Warby Parker, Sweetgreen and several other venture funded consumer brands go public or get bought at heady multiples, leading to an investor frenzy around investing in consumer brands” — Jason Stoffer, partner at Maveron
“WeWork is purchased by Amazon; because they can do anything.” — Paul
“2019 was not kind to sports-related IPOs with share prices of companies such as Wanda Sports Group, Super League Gaming, and Peloton, all falling in public market debuts — not to mention the highly anticipated Endeavor offering never making it out of the gate. With public markets souring on sports, look for alternative exit strategies — namely PE — from late stage startups to dominate the conversation in 2020. Additionally, get ready for quite a bit of M&A activity in high-growth categories like home/connected fitness with names like Tonal, Mirror and Zwift being likely acquisition targets — especially on the heels of Google’s $2 billion purchase of Fitbit.” — Michael Proman, managing director at Scrum Ventures
AMAZON: Readers predict the ongoing dominance of tech giant Amazon.
“Smart home and connected devices will be on a lot of Holiday Wishlists and make their way into new homes with the holiday season. Amazon will continue to grow as a leader in the space” — Jason
“I see 2020 bringing major consolidation in the food space to compete with Amazon. The largest food delivery companies will merge and I think grocery chains could make a move to consolidate as well. Large regional chain in the $10B+ range are working on low margins with a novice approach to e-commerce will get crushed by Amazon without a cannon of real estate behind them that could act as micro-fulfillment centers very soon — or dare I say turn into ghost kitchen a la Travis Kalanick.” — Brett
CRYPTO: Readers are betting on the prevalence of Bitcoin and blockchain technology.
“Declining US global leadership combined with projected out of control spending from either another Trump or a Warren/Sanders administration on top of unsustainable US debts will wreak havoc on the US dollar. Meanwhile, China’s long game of developing an alternative reserve currency will further erode global demand for the US dollar. Bitcoin will rise dramatically as a result.” — Gavin Myers, chief investment officer at Prudence Holdings
“Now that blockchain’s hype cycle has boomed and busted, things can finally get interesting.Whereas in years past the fundamental building blocks hadn’t yet been created, we’re just beginning to see the initial emergence of infrastructure that has the potential to at long last enable blockchain to begin by the end of 2020 to live up to its early hype.” — Schwark Satyavolu, partner at Trinity Ventures
ARTIFICIAL INTELLIGENCE: Readers predict companies will wield the power of AI to make their workplace more efficient.
“In2020 we’ll see a focus on the term ‘Intelligent automation’. The robotic process automation (RPA) market will shed the limitations of rule-based functionality as the coupling of AI/machine learning (ML) and RPA will allow for more complex problems to be solved, leading to new value in workforce efficiency.” — David Blumberg, founder & managing partner of Blumberg Capital
“In 2020, we’ll stop seeing AI as a threat to jobs and human connections, but as an asset that can improve both. We’ll also realize that AI isn’t an instant performance booster, but made for bespoke applications across organizations that will power analytics, decision making, and process automation that can free up people to drive innovation and make more emotional connections with customers.” — Gregg Johnson, CEO of Invoca
“One of my favorite quotes is by Paul Saffo, who said: ’Never mistake a clear view for a short distance.’ With respect to Artificial Intelligence, just because data exists within an organization doesn’t mean that data is in a usable, transferable format. 2020 is the year that businesses will begin to understand that their data is not AI-ready, rendering their business processes inefficient, ineffective or inaccurate.” — Carl Vause, CEO of Soft Robotics
“In 2011, it was predicted that software would eat the world and disrupt all vertical sectors. And that’s rang true, so in 2020, and I believe A.I. and machine learning will become truly mainstream and eat software in the same way.” — Jai Das, president and managing director of Sapphire Ventures
“This coming year will mark the shift from predictive analytics to prescriptive analytics. Whereas predictive analytics are used today to make predictions about future outcomes based on historical data and analytics techniques such as statistical modeling, AI and machine learning — prescriptive analytics will take us one step further to help us optimize input for desired outcomes.” — Rudina Seseri, founder and managing partner of Glasswing Ventures
“In 2020, we need to create guidelines that ensure that AI is applied in an equitable way. AI has the potential to improve people’s lives and solve societal problems, but if we don’t start thinking about power distribution now, we risk institutionalizing AI in a way that may exacerbate inequalities.” — Rana el Kaliouby, CEO and co-founder of Affectiva
CLIMATE TECH: Readers expect an increased investment in startups focusing on climate technology.
“2020 will be the year top talent rushes into climate tech as aggressively as it did into blockchain a couple years ago.” — Seth
“We’re already seeing climate change as part of the presidential debates and the PG&E debacle will continue to bring it all to the forefront. Investment in the energy tech sector will surpass $10B for the first time since the 2008 collapse of natural gas prices. — Kevin
“My 2020 business prediction is: Climate change as a liability will start to disrupt real estate, insurance, and supply chains.” — Liz
“We will see a rise in climate change startup investing as wealthy investors see increased risk and reduced use of their second homes” — Mike Jones, CEO of Science Inc.
“In response to increasing constraints on carbon, we will see a renewed interest in cleantech and a shift away from a resource-based energy economy toward a technology-based energy economy. Traditional energy companies will have to face changing environments that demand new business models which provide cleaner technologies that are cost competitive with existing sources of energy.” — Katie Rae, CEO and managing partner of The Engine
… And readers are bullish on other types of business models, too:
“As ‘new’ streaming services launch there is a plethora of capital and executives eager for creatives to conjure their new flagship show (a la Game of Thrones). Between short-form media (Quibi), the ability for social media influencers to monetize brief content, hour+ traditional TV, and feature length films, the creative class will enjoy the ability to create pet projects which may have never seen the light of day.” — Edward
“More vertical social networks where people float between different representations of their identity, and where they can be themselves/explore their interests (e.g., Co-Star, Elpha, Masse). Communities that combine high-tech and high-touch (e.g., Revel, The Wing, Chief).” — Cat Lee, partner at Maveron
“The ‘everyone wants to be a bank’ trend will continue in 2020. Customer acquisition is getting more and more expensive, so we’ll continue to see fintech companies try to broaden their share of wallet with banking products, which are now easier to offer than ever with off-the-shelf solutions.” — Jennifer Fitzgerald, CEO and co-founder of Policygenius
“Fintech becomes serious business – until now, fintech companies have primarily focused on peripheral business models either selling software to incumbents or innovating in relatively small transaction sizes (ex: loans < $500K). Fintech has never attempted to disrupt large commercial transactions (> $25M) and will take on what has been the traditional domain of large asset managers (>$70T AUM), investment banks (revenue >$70B/yr) and major financial exchanges (transact > $70T in market cap).” — Blair Silverberg, CEO and co-founder of Capital
“We’re about to hit the peak of subscription business models in commercial and enterprise. We will see a consolidation in the market of subscription service business with fears of an economic turndown and businesses/consumers looking to hold more cash on hand.” — Andrew
“The micro-mobility sector will gain more traction as regulatory requirements for new mobility players become increasingly standardized across cities, paving the way for a flood of new micro-mobility options beyond the electric scooters that are now commonplace in major cities.” — Andy Johns, partner at Unusual Ventures
DATA & PRIVACY: Readers expect privacy to play a big role in policy and regulation.
“The US, following the lead of the EU, will begin the long process of regulating who owns user data, and what companies can do with it. No longer will it be acceptable for the data giants to simply say ‘we can do better’ and then ignore reality. The threat of “big brother” is real, is now, and will have to be addressed. GDPR is nice — but it’s just the beginning. — Steve Duplessie, founder and senior analyst at Enterprise Strategy Group.
“In 2020, it’s likely that we’ll see some sort of federal, broad-sweeping regulation like what the EU did with GDPR. It will involve consumer privacy, and it will be a mandate from the federal level. This is somewhat dependent on the election outcome, and it may not happen next year, but within the next 2-4 years. This is top-of-mind for CEOs and boards in the year ahead as foreign nation-states continue their hacking efforts.” — Matt Kunkel, CEO of LogicGate
“As we collectively reevaluate the pros and cons of sharing our private data, attention, and our time, new startups will emerge to help. That may mean new tech products that value privacy, new business models that don’t trade on selling our attention, or tools that help us focus and then disconnect. 2020 will mark the beginning of a new wave of more humane technology.” — Matt Hartman, partner at Betaworks Ventures
“Depending on the election results next year, I predict we’ll see something similar to the California Privacy Act brought nationwide by 2021.” — Matt Kinsella, Managing Director, Maverick Ventures
RECESSION: Readers predict an economic downturn in 2020.
Recession with 20% market correction. — Matt
“I believe that the incredibly high debt levels of Western governments are going to cause a loss of confidence in the markets. By March 2020, the smart money will have left the market and the Dow and Nasdaq will drop by about 40%.” — Mark
“My prediction is that the PE/VC-driven bubble will pop in 2020 and will ultimately be the catalyst for the next downturn. WeWork was the first shoe to drop and there are more to come.” — Stefan
“A credit accident and a ‘freakout moment’ where U.S. market declines over 10% in a single month.” — Andrew Lester
“The predicted ‘Great Recession of 2019’ has been postponed until 2020 at a time when presidential candidates are throwing jabs at private equity, the venture capital industry is dusting itself off after the failure of multiple high profile IPOs, and competition for investor dollars is at an all-time high. Fund managers in the coming year will need to focus on cutting costs, increasing quality, and using every tool available to become smarter and more efficient.” — Jared Broadbent, founder and managing partner at Strata Fund Solutions.
“The much talked about recession won’t materialize in 2020.” — Mike Myer, founder and CEO of Quiq
“The residential real estate market will crash despite the Fed lowering interest rates to zero.” — Maurice
THE WILD CARDS: Everything from billionaire lawsuits to aliens to e-sports in the Olympics.
“In 2020, one of the following two things will be publicly revealed: that John Legere is Adam Neumann’s real biological father, or that Adam Neumann is actually Sacha Baron Cohen playing a role.” — Pedja Predin, investment manager at South Central Ventures
“John Oliver will most likely be sued by at least one billionaire and one mega corporation in 2020.” — Mike Jones, CEO of Science Inc.
“Amazon, noting the effectiveness of print marketing, starts a delivery service to compete with the Post Office.” — Larry Kavanagh, CEO of NaviStone
“Hopefully this is not the case, but I feel at least one or two big accounting scandals are bubbling beneath the surface.” — Tom
“Billions of dollars are quickly moving to space travel, communications, exploration and ownership. Space is obviously the ultimate new land-grab. Everyone wants to put their flag into fresh soil, and perhaps when aliens land on Earth they will put their flag here.” — Bonnie Beeman
“The emergence of the first esports athlete with a bigger loyal social media fan base than any NFL player. Esports is on the rise and this is coming … if not 2020, in the years that follow. And the International Olympic Committee will announce esports as an event in the Olympics before the 2028 Games.” — Bracken Darrell, CEO of Logitech