Founders Factory CEO and Lastminute.com founder Henry Lane Fox, said: “We finish 2021 in a markedly better position to how we began it — despite the ongoing challenges of the pandemic.”
Crypto and Web3 will be a “defining component” of 2022
What is Web3? Think of the internet but add blockchains. Web3 will allow users to control and own assets, like data, by registering them onto the blockchain.
The aim is to realign the balance of power away from tech giants like Facebook and YouTube, and “decentralise” the world wide web. Ownership and control will be powered by cryptocurrency, so the theory runs.
(Web 1 and 2, if you were wondering, refer to the initial stages of the internet where sites like Yahoo dominated, followed by the rise of platform businesses such as Facebook and Twitter.)
Jambu Palanappian, managing partner at Canadian VC giant OMERS Ventures, said: “We believe that the intersection of these two themes will be a defining component of next year, as we see more widespread customer adoption and how regulators chose to approach the category.
“We are seeing crypto potentially emerging from being a niche part of finance and financial services to becoming a mainstream asset class, legitimised by both investors and regulators. The idea of a decentralised financial system… is becoming very much more compelling.”
Climate tech firms will be “super hot”
COP26 got everyone talking about, and investing in, climate tech and “clean” tech — technologies providing eco-friendly solutions to everyday tasks or helping to remove carbon from the atmosphere.
David Grimm, investment director at the UCL Technology Fund, said: “We’re going to see startups developing clean transportation go from strength to strength.”
He predicts hydrogen will “finally start fulfilling its potential” in clean transport.
NFTs (non-fungible tokens) will hit the gaming world
NFTs — unique digital images secured on the blockchain — were the biggest trend in consumer technology this year, growing from almost nothing to a huge industry that is drawing attention from the likes of Adidas and Damian Hurst. Collectors, investors and speculators have poured $27 billion into the market this year, according to Chainalysis, which tracks purchases.
“In 2022 NFTs are set to move beyond NFT 1.0 to NFT 2.0,” says Jay Wilson, investment director at London-based venture capital firm AlbionVC.
“As NFTs become a cultural phenomenon like [Facebook/Instagram’s] Likes and Shares in the decade before them, we are set for a new era of NFT 2.0 with more depth and creativity.”
He and colleagues expect to see further adoption of NFTs in the gaming sector, and “wide-spread use” in the music and fashion industries.
Addie Pinkster, founder of Adelpha, expects to shortly see branded NFTs within games such as Minecraft.
Buy-now, pay-later will keep exploding
Buy now, pay later — the online challenger to credit cards — has exploded in Britain during the pandemic, with over 5 million people using it to fund more than £2 billion in purchases in Britain alone, according to FCA research.
Ian McLennan, partner at investment manager Triple Point Ventures, expects momentum to continue next year.
“The neobanks are likely to increase the speed of adoption of BNPL and other new financial products as they drive for profitability in the coming years,” he said.
“The increased growth of ‘buy now, pay later’ products (BNPL) is inevitable as fintechs attempt to engage younger customers.”
Elsewhere in fintech, GlobalData is predicting a boom in so-called super apps, like China’s WeChat or Revolut, that offer many services in one place. GlobalData’s Amrit Dhami said the value of mobile wallet transactions is set to exceed $266 billion in the US alone next year.
Health tech “one of the hottest sectors”
If the pandemic has highlighted one thing, it is how vulnerable our healthcare services are to surges in illness or disease. The solution, according to many investors, is investment in new healthcare technologies.
Investment in digital health solutions has jumped in 2021, fuelled by an increasing focus on wellness and a shift to virtual doctors’ appointments during the pandemic.
Keyvan Vakili, associate professor of strategy and entrepreneurship at London Business School, said health tech, including tech aimed at improving mental health, will likely be “one of the hottest sectors” next year.
“The pandemic has brought into perspective many shortcomings in the current healthcare provision across the world and entrepreneurs have been fast to target these shortcomings with different creative ideas,” Vakili said. “The governments and healthcare providers have also become more receptive to these innovative healthcare solutions given the growing pressure on them.”
Experts also expect continued interest in femtech – technology aimed at helping women through childbirth, menopause and menstrual cycles. Startups in this space are currently seeing a surge in investment after decades during which women’s health research fell to the bottom of the priority pile. Frost & Sullivan predicts the sector will grow to $50 billion by 2025.
‘Bonfire’ of rapid grocery apps
Venture capital investors ploughed huge sums into startups in the speedy grocery delivery space in 2021. Apps such as Getir, Gorillas, Zapp and GoPuff are aggressively vying for market share.
Many experts believe the sector will consolidate in 2022, meaning some firms will be bought up by rivals or fall by the wayside. Andrew Gwynn, an analyst at Exane BNP Paribas, said: “Consolidation is a given, it’s a question of pace… For some of these operators their primary purpose is to get bought out.”
OMERS Ventures managing partner Harry Briggs called the situation “a bonfire”.
He said: “We’ve started to see signs of this towards the end of 2021, with huge valuations being followed by cost cutting and knee-jerk acquisitions, and I feel this downward trajectory will continue into 2022.”
Valuations may come back to earth
Tech startup valuations have soared over the past year. The number of unicorns — startups valued at over $1 billion — have skyrocketed: there were 29 formed this year in the UK alone.
Some experts think these sky-high valuations may moderate next year.
Triple Point’s McLennan said: “Higher and sustained inflation is likely to impact valuations moving into 2022. The modestly higher inflation that we expect could lead to higher bond yields, which are likely to bring down valuation multiples for listed /technology stocks.
“This in turn will have a knock-on effect in the unquoted sector. As a result, valuations may become more moderate.”
High valuations and “buzz” don’t necessarily equate to amazing returns for investors either. Molten Ventures’ Davis said some of the best bets are startups “delivering real benefits to legacy industries.”
He pointed to cloud-native retail banking system Form 3 and companies doing things like digitising sanding grit delivery in the construction industry or offering last-mile drone delivery. They may not be the sexiest companies, but they solve real problems.
Finally a focus on diversity?
The tech world has long been criticised as too white and too male. This year just over 1% of overall VC funding in Europe went to founding teams solely made up of ethnic minorities, Atomico’s State of European Tech report found.
Evgenia Plotnikova, a general partner at London VC Dawn Capital, says there’s “still a lot of work to be done” but attitudes and applicants are changing.
Plotnikova said: “People are coming out of scale-ups, large tech and VC to start new companies, regardless of gender and background. Also, more and more investors and partners are women, and I hope this will create a positive flywheel effect.”
Plotnikova, who previously worked at Atomico, was the youngest woman in Europe to be promoted to general partner at a venture firm.
Dawn focuses on the traditionally male-dominated B2B software sector. Plotnikova said: “I am excited by the increasing numbers of women leading technical businesses — businesses that for a long time were wrongly assumed to be reserved for men. Our laser focus on B2B software allowed us to see an anecdotal but an encouraging shift.”
Companies to watch in 2021:
Jambu Palanappian: Tax automator Fonoa.
Martin Davis: Cloud-native payments processing platform Form 3.
Disclaimer: Some of the experts are investors in these companies