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4 Big Industries And Their Next Generation Tech Disruptors

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If we can learn anything from the inaugural Next Billion-Dollar Startup List, it’s that no industry is safe from the possibility, and reality, of disruption. Many of the companies on the List are tackling problems or inefficiencies in food delivery, lending, auto sales, or shopping, and most are stationed in Silicon Valley with a handful in New York, London, or Germany. So which industries are these next-generation startups overturning, and what are the new markets created as a result of their innovation?

We zeroed in on a few trends weaving together 25 of tech’s fastest growing, next-gen startups and found the following: a revolution in e-commerce coupled with newly defined marketplaces; a strong need for simple and local meal delivery, as well as enhanced food discovery; a concerted effort to disrupt traditional institutions like banks; and a strategic capitalization of open-source platforms to redefine enterprise and mobile.

Read on to learn about the industries most upturned by these innovative companies, some of which may become billion-dollar household names.

By The Numbers

The average age of the companies on the Next Billion Dollar Startup List is just under five years, with an average of about four funding rounds (including angel or seed financing). These next-generation tech companies collectively raised well over $3.5 billion of equity and debt, or $161 million each on average, while 22 of the 25 companies raised a round of financing in the last twelve months.

While we cannot disclose all individual company data, of those 18 companies with valuations that are public, the average valuation is an estimated $630 million. Not surprisingly, most of the 25 startups hail from California (16), with two in New York (Blue Apron and Orchard Platform), two in Boston (SimpliVity and Affirmed Networks), two in Europe (Deliveroo and Kreditech Holding), and one in Seattle (Redfin).

Overall, the list is almost exactly split between consumer and enterprise companies.

 E-Commerce and New Marketplaces: The Death of Brick and Mortar

E-commerce companies took the lead in the 2013 exit market, with Zulily making a smash debut in the public markets and giants Google , Amazon, and Wal-Mart following with several acquisitions. Since then, some might say that e-commerce has slouched. But several companies on the List are helping to keep e-commerce in the game by demonstrating its versatility.

Companies like Raise, Beepi, and Thumbtack all offer unique takes on an e-commerce business by introducing new, modernized concepts of the traditional marketplace.

As an online marketplace for buyers and sellers to trade gift cards at a discount, Raise (co-founded by CEO George Bousis) is tackling a market of potentially $80 billion of unused gift card value. Meanwhile, co-founder/CEO Alejandro “Ale” Resnik of Beepi is connecting buyers and sellers safely, cheaply, and painlessly in an industry that history has known to be anything but: used car sales. And in a slightly different spin on the marketplace, Thumbtack acts as a Yellow Pages in reverse by providing an online platform for local pros to search for a customer’s service request and bid for his/her business.

Another company, Teespring, is also leading a new wave in e-commerce with a Kickstarter-inspired social selling platform. Founded by Walker Williams and Evan Stites-Clayton in 2011, Teespring allows anyone to launch a social campaign around a product, custom design their apparel, and sell their products directly to buyers at no upfront cost - a direct result of buyers and sellers working together to produce what they need.

Food Delivery 2.0: Food and Tech Are Back in Vogue

According to CB Insights, U.S. food tech companies raised over $1.0 billion in venture funding throughout 2014, at a growth of 272% year-over-year. And that’s not including the international push to replicate the success of U.S.-based companies like GrubHub, which saw its shares rise 31% in its public market debut.

With a range of niche sectors, including food delivery (like DoorDash), food discovery (like GrubHub), restaurant tech (like Reserve), and food replacements (such as Hampton Creek or Soylent), food tech has an all-inclusive menu.

One of many food fighters in the competitive space is San Francisco’s DoorDash, the local restaurant delivery service founded in a Stanford dorm room by four students. Backed by a number of prominent investors, including KPCB, Sequoia Capital, and Silicon Valley’s resident food tech firm, Khosla Ventures, DoorDash has fast outgrown its campus roots and expanded into eight major cities nationwide.

Similarly, delivery startup Deliveroo is helping to evangelize food tech across the pond, giving Londoners a fast alternative to fast-food. Founded by childhood friends William Shu and Greg Orlowski, Deliveroo began out of necessity after Shu, formerly a Morgan Stanley investment banker in New York, transferred to London and grew tired of take-out options limited to Burger King.

And in another pocket of the food tech industry is Blue Apron, the New York-based meal kit subscription company on a mission to make fresh food and home-cooked, original recipes much more convenient, with co-founders Matt Salzberg (CEO and former VC at Bessemer Venture Partners), CTO Ilia Papas, and Chef Matthew Wadiak at the helm.

Perhaps most exciting about this industry is that founders are no longer intimidated by the challenges of food delivery. Given the lowered costs of starting a tech-enabled company, and technology’s permeation across industries, founders are willing to revitalize business ideas through improved methods and lessons gained from past mistakes.

Fintech and the Unbundling of Banks: Gunning for Wall Street

In the credit drought left by the 2008 financial crisis, startups specializing in financial services technology (fintech) have arrived in a downpour, each with different means towards the same end: to disrupt the current banking model. Nowhere has this been more apparent than in lending.

Beginning in 2005 with UK-based Zopa and culminating last year in Lending Club’s soaring public exit, the online lending marketplace entered this year on a Gold Rush high. But even though its roots are in the model of “peer-to-peer lending,” simply defined as the practice of one individual or institution lending to another without traditional intermediaries (mainly banks), the ecosystem of next-gen lenders today is sprouting a number of niches. One of those niches is student loan refinancing and, more recently, mortgages.

Founded in 2011 by four Stanford business students, Social Finance (SoFi) began as a marketplace connecting recent graduates with alumni from the same alma mater, with the goal to create a pool of money for alumni to lend and pocket a share of the interest. Two years and over $2.0 billion in loans later, CEO Mike Cagney is now taking on home mortgages across more than 20 states in the U.S.

As another company out to revamp lending, Orchard is looking holistically at the entire lending ecosystem instead of tackling a single niche. Rather than connect with borrowers directly, Orchard uses the growing complexity of the marketplace lending landscape (what it calls the “lendscape”) to its advantage by providing a support structure for the individuals and institutions within it. Through its investment and analytics platform, Orchard connects institutional investors (including family offices, hedge funds, and now, even banks) with origination platforms like Lending Club, Prosper, and OnDeck Capital, allowing both parties the chance to assess their options and deploy capital at scale.

But the unbundling of banks doesn’t stop with lending marketplaces. One more fintech company on our list, Zenefits, is targeting both traditional payroll management and health insurance brokers with its free all-in-one HR platform for small businesses. Founded by CEO Parker Conrad and CTO Laks Srini, Zenefits hit a $1.0 million revenue run rate after just eight months, with the potential to hit a run rate revenue of $100 million at the end of this year.

And finally, two more fintech companies on our list – one based in the U.S. (Avant) and one in Europe (Kreditech) – are using data and machine learning to rethink and recalculate credit ratings in a way no bank ever has.

Avant, founded in 2012, offers installment loans not to high-end, low-risk consumers or to super subprime borrowers, but to those in between: near-prime borrowers with FICO scores between 600 and 700, who have been left largely ignored by banks and other traditional lenders. Rather than limit their scoring to FICO, Avant processes thousands of other variables to assess each customer’s risk, giving borrowers the second chance on their loans that banks could not grant.

Like Avant, the Hamburg-based Kreditech aims to serve the underbanked. But even more ambitious than the fintech startups before it, Kreditech isn’t exactly “unbundling” banks—it’s re-bundling discrete financial services into one fully automated, real-time, multi-channel “bank.” Started in 2012 by CEO Sebastian Diemer and CTO Alexander Graubner-Müller, Kreditech deploys machine-learning algorithms to tackle 20,000 dynamic data points. Just three years later, Kreditech now operates in nine countries, offering an assortment of products and services including micro loans, virtual credit cards, and physical credit cards through its subsidiaries.

For all the attention that’s been tuned into the sector, fintech companies are not just turning heads in Silicon Valley—they are also fast drawing the gaze of Wall Street. Just last week, JP Morgan Chase CEO Jamie Dimon warned shareholders that “Silicon Valley is coming,” and that new startups with significant capital and expertise are thriving in areas like payments and lending. This level of attention validates that the companies being built are real, and even the largest incumbents are on their toes.

Open Source Origins: Give It Away

As Index Venture Partners’ Mike Volpi writes for Re/Code, a profitable company might seem like the antithesis of the open source community. But for three of this year’s next-gen startups at least, open source projects have been the basis for redefining the enterprise and mobile operating systems.

As Volpi argues, the technology market has become ripe for open source companies to succeed as businesses. Compared to 50 years ago when the software industry was pushing bulky, packaged software onto users and making costly upgrades, the open source movement rose out of necessity for a community-driven product that could implement changes swiftly and cheaply.

The only problem was that open source projects at the time were made by techies, for techies—they were hard to translate into an enterprise environment without additional structure and control.

Today, that environment has changed. Open source projects and communities (like Docker, Apache Cassandra, Cyanogenmod, and MongoDB) remain cheap to produce but secure and scalable enough to introduce to the enterprise. And several companies, walking in the footsteps of open source provider Red Hat, are aiming to fulfill the promise that the open source communities first created.

Before the Docker community arose in 2013, and before company CEO Ben Golub climbed aboard, Docker was an internal technology developed by dotCloud, the platform-as-a-service provider now acting as the Docker commercial entity, Docker Inc. Today, with a partner base ranging from fellow startups like Orchard and DoorDash to software giants like Microsoft, eBay, and Google, Docker and its developer community have created an unforgettable brand as much as an indispensable technology for the cloud infrastructure of many companies.

DataStax, built on the open source, NoSQL database Apache Cassandra, is taking aim at incumbent enterprise infrastructure firms by packaging and servicing the enterprise use of the Cassandra project. Led by CEO Billy Bosworth, DataStax has grown from 19 to 400 team members and now has a customer roster that includes Netflix and eBay. And with co-founder Jonathan Ellis sitting as the Apache Cassandra project chair, DataStax appears well prepared to stay true to the open source community even in the context of the enterprise.

And beginning in 2009 like any quintessential tech startup should – as a late-night hacking hobby – the open source project Cyanogenmod did not evolve into Cyanogen, the company, until much later. Started by Steve Kondik and a core team of developers, Cyanogenmod began with Android’s free-to-download operating system and evolved into an ideal product that Kondik and his team had in mind, but with no one available to make it: Cyanogen OS.

Now with the help of CEO Kirt McMaster, the Cyanogenmod community has given birth to Cyanogen, Inc. And even though it’s no longer just a hobby but now a multi-million dollar company, Cyanogen has kept its main goal intact: to make “your mobile device” truly yours again, and give users another option when it comes to their mobile operating system.

Human Economies Powered by Technology

Across a range of sectors and geographies, from the West Coast to Western Europe, our first list of venture capital’s next billion-dollar companies demonstrates the wide reach of technology and its potential to bring communities together in new ways, all towards the transformation of old industries. Whether it is new technology applied to sectors living in the analog, new business models, or fresh attempts at old ideas, tech companies today have the opportunity to be massive, and impact every aspect of the global economy.

Click here for more coverage on the Next Billion Dollar Startups.

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