With 2017 well underway, we thought it would be a good time to reflect on how the landscape of technology investing is shaping up in these somewhat uncertain times of Brexit and Trump. Equities are at all-time highs and corporates are really feeling the advance of technology and innovation, bidding to disrupt their established business models. With a glut of venture capital in the markets, fuelled increasingly by unorthodox investors such as hedge funds and crowdfunding platforms, businesses are opting to stay private for longer than ever. We believe valuations will see a slight correction in 2017 as investors begin to favour profitability and sensible burn rates over growth at any cost. As a result, the outlook is much more positive on the tech IPO market opening up during 2017.
Here in the UK, 2016 saw a continuation of the trend for foreign buyers acquiring promising tech businesses, most notably the acquisition of SkyScanner by a Chinese entity as well as a number of others such as artificial intelligence businesses Magic Pony and SwiftKey being acquired by Twitter and Microsoft, respectively. The development is double edged. On the one hand, this is evidence of the high calibre innovation being developed here and on the other hand there is an argument that such businesses are being allowed to be snapped up before achieving their true potential. The EU has recognised the latter and has launched a Pan-European VC Fund of Funds designed to broadly encourage the proliferation of the EU’s venture capital asset class.
Based on the evolving nature of our dealflow, we believe the following themes will come into their own in 2017, and are therefore focussing our efforts accordingly. As ever, we continue to aim to engage with businesses with an underlying theme of sustainability, though are increasingly defining sustainability in its broadest sense (in essence, nothing that is or could be socially or environmentally harmful, and saves valuable resources).
Artificial Intelligence, including Internet of Things
The impact of artificial intelligence will be felt across a number of disparate parts of the economy. Increasingly, the lines between AI, IoT, machine learning and robotics will become blurred. From self-driving cars to the automation of legal and contractual analysis to education and embedding further energy efficiency within the built environment, opportunities to identify and reconfigure usage patterns in this space are likely to abound in 2017.
The opportunities to use technology to create efficiencies in the financial services industry are ripe together with the associated cybersecurity. Online-only banks are beginning to proliferate and incumbent institutions are more aware than ever that such efficiencies must be brought into their existing lumbering infrastructure, or risk becoming obsolete. Bitcoin continues to attract much interest and speculation, however the emerging opportunities are likely to arise from the application of blockchain, the technology powering the Bitcoin currency, within the financial services sector as well as across many other parts of the economy.
This is a groundbreaking time for the energy, water and food industries with challenges around sustainability, security and affordability. This has created the opportunity for novel technology and service solutions that can challenge traditional operating models ranging from the way we use natural resources, to design and manufacture through to how we educate the next generation.
Not everything will roll out as expected. Look out for some surprises which can come from several different directions as emergent technologies cut across a diverse range of markets.
If you are an investor or know of any investors interested in access to dealflow within the above themes, we would be delighted to hear from you. Equally, if you have any thoughts on themes not covered above of which we should be aware or considering please do get in touch.