It’s hard to believe that 2012 is about over, however, attention is turning quickly to 2013. I’ve been talking with friends and thinking about what the new year may bring, and that has turned up some interesting perspectives.
1. The economy may be in for a rough ride. I hate to say this after four years of struggle following the 2008 financial crisis. But here is the downside argument (laid out elegantly by an investor friend). Obama and the Democrats will deadlock the fiscal cliff/debt ceiling negotiation and push the economy back into recession to achieve a big political win. The public views the Republicans as the chief obstructers. So, the Democrats make an aggressive proposal and stir up public sentiment (as they have), and then refuse to compromise. Their bet is that they will get their way in the end, the Republicans will get the blame for the double dip, and come 2014 the Democrats will control both houses of Congress. National politics these days is like a suburban high school football team (the Republicans) up against the Chicago Bears.
I suggest we tell our elected reps in both parties that they will all be turned out (preferably without their indexed pensions and lifelong Cadillac health care) if they don’t make a deal and get on with the business of government. And we should mean it.
2. The Consumer Web is fading. Fred Wilson wrote a provocative post last week saying that the big companies are sucking up so much oxygen in the consumer web that opportunity for start-ups is diminished, and the “hot” later stage money has moved on to enterprise IT (link). How true?
Parts of the consumer web are clearly very crowded: there are over 1 million apps in the major app stores. Social networking has been tried in about as many different ways, and almost every platform has a social networking feature now, many of which are really annoying: the new way to be a bozo is to endorse everyone you vaguely know for “skills and experience” on LinkedIn. And, mainstream eCommerce is arguably mature.
But, important problems remain to be solved. More complex forms of eCommerce such as high fashion and regulated goods are relatively open space. Automating daily life is a work in progress: some parts (e.g., travel) are done well but others (e.g., mobile payments) are adolescent. Brand advertising in digital media, and almost any kind of monetization of the mobile web, still works poorly.
3. Money for start-ups will be tight. Capital inflows to venture funds have declined by one-third or more from 2005-2007 levels. In 2011 30 companies were funded by angels for every one that received an initial VC funding. Fortune/CNN reports that a Series A crunch is on (link). Anecdotally I hear that only 20% of firms seeking Series A financing are finding it.
But, fascinating new areas of opportunity keep emerging. Enterprises are starting to see IT as strategic again: a way to obtain competitive advantage, not just a fixed cost to be rationalized. Obama’s impressive re-election win drew attention to the value of granular analysis of market data combined with rapid and systematic experimentation to sell products of all kinds (not just politicians). This gets gathered under the rubric “Big Data”.
The cynic in me says Big Data is the 21st century name for data mining or statistical analysis, much as Nanotech is the 21st century name for inorganic chemistry. But, advances in the performance/cost ratio of computer systems, and the fact that most of us spend much of our lives on the web, generating machine-readable data about our behavior, means we can do more than ever before to recognize commercially important patterns in large behavioral and demographic data sets. [BTW: this is a good thing for my base: Boston, as Boston is strong in enterprise IT and deep computer science, and relatively weak in consumer web.]
And, there are some big industries, health care and higher education, that are ripe for disruption, ripe because they are very high cost and organized on early 20th century principles. Cost pressures, widespread consumer and government discontent, and the demonstrated success of technology-based disruption in related sectors have sown the seeds of change here.
Mary Meeker sums much of this up in her annual “Internet Trends Update". She uses time series analysis and data visualization with her trademark skill and flair to show how fast market are changing.
And, even as the consumer web was soaring and perhaps now stagnating, entrepreneurs have been nurturing businesses in these emerging categories. We have several in our portfolio that are looking quite good.
So, ’13 looks like a rough ride, perhaps a year that will live up to its numerological reputation. But, the great thing about entrepreneurship is: there is always opportunity to start a great company; that never stops. It’s like soaring. In a clear sky, the best pilots can sense where the air is rising, navigate to an updraft, and climb very high, all without a big heavy engine.
