My 2010 Predictions: A Look Back

5 Dec

Around this time each year we in the tech/venture community turn our attention to the year ahead and pick trends and themes that will presumably shape the coming twelve months.

To my mind, no view forward is complete without a retrospective on the year drawing to a close and, with it, a re-examination of themes that were ostensibly to define the year. From that perspective, let’s take a quick look at the trends I identified in my Ten Tech Trends For 2010 post from January and assess how I fared.

1. Green Shoots But No Chef’s Salad. Given an abysmal 2009 by most accounts, that 2010 demonstrated greater activity across the tech landscape—from rising public and private company valuations to overall investment pace—was hardly cause for jubilation. That said, the pace of financings, the froth in early stage valuations, and the continued strength of the M&A market surprised many of even the most bullish of observers. Grade A-

2. Physical Media dies..a little more. On September 23, Blockbuster dropped the other shoe and finally, unceremoniously—and mercifully—declared bankruptcy, thereby joining the ranks of now-defunct juggernauts Tower Records and Virgin Megastore  and putting a very public face on the continued disintegration of physical media.  Grade A

3. Strongest IPO market in (almost) a decade. We began the year with some impressive tech names filing their S-1s, or threatening to do so, but few of the most closely watched companies ended up taking the public exit route in 2010. While the pace of IPOs in 2010 was a significant improvement over that of 2009, Facebook, Zynga, LinkedIn and Silver Spring Networks all remain privately held entities, albeit very successful and very well-funded ones. To be sure, the vigorous secondary market and the continued institutionalization of that market played a significant role in enabling these companies to be cavalier about the prospect of going public. With no shortage of capital available at often sky-high valuations to companies like Facebook and Twitter, a key pressure point for CEOs seriously considering a public exit—providing liquidity to early employees and investors—was largely mitigated. Grade B

4. Entrepreneurs Reign Supreme. Facebook, inarguably the most closely watched privately held technology company, is still helmed by its 26-year old founder despite its torrid growth and its having raised hundreds of millions in capital. Groupon, which this past week reportedly turned down a $6 Billion takeover offer from Google, is considered the fastest-growing technology company in history and will reportedly generate $2 Billion in revenue this year. It’s CEO, Andrew Mason, is all of 29. The story of the ‘return of the entrepreneur’ cannot be told properly without remarking on the revival in consumer internet and how there exists renewed investor comfort and appetite for young founding teams that really understand consumer web services and products. Grade B

5. Changing of the VC guard escalates. Despite a frothy early stage market and big (still private) successes like Zynga and Groupon becoming household names in 2010, fundraising for venture firms remained challenging. One explanation offered in my January post was the lack of distributions from many venture firms for the better part of a decade. The fundraising picture did not particularly improve in 2010, despite a strong M&A market and some decent venture-backed IPOs. While first-time managers have long faced headwinds in the LP community, in 2010 many branded legacy firms struggled to raise follow-on vehicles as well. In cases where established funds were successful in raising follow-on vehicles, many of those vehicles were considerably smaller than their predecessors.  

Venture funds that moved too slowly to adapt to changing market conditions, or who have not managed partner succession adroitly, or who missed the boat on fast-moving areas of investment will continue to struggle to maintain relevancy in 2011. Grade B+

6. Vertical Social Networks Catch Fire. My position that users would “continue to demand rich content, ubiquity and connectivity of social networking platforms” has certainly been supported by the marketplace. However, the predicted boomlet in vertical social networks did not come to pass in 2010, although usage across the category expanded dramatically. That said, there were a number of recent product launches and acquisitions by the large “horizontal” social networking companies that appear to support the notion of offering robust vertical solutions with custom applications idiosyncratic to those vertical markets. Grade C+

7. EnergyTech has its Moment. The clean-tech community rang in 2010 with high hopes that a big-name IPO coming from the space would spur a wave of exits in its wake and finally quiet naysayers that felt the sector was overheated and would not generate returns to overcome the significant investments made there over the past decade. Twelve months in, Silver Spring Networks remains privately held and there is some speculation that investment pace and enthusiasm has cooled in EnergyTech as of late. Grade C

8. Early Stage VC Returns To Form. In perhaps the biggest story of 2010, early stage venture investing—particularly around consumer web, cloud computing, digital media and web services—came back with a vengeance. The year also brought new terms to the venture lexicon such as “Micro-VC”, “super-angel” and “Angelgate.” Personal note: Thankfully the BIN 38 kerfluffle has blown over and I can make the wine bar my regular post-dinner nightcap spot again. I don’t have a problem with what happened there (or didn’t happen there, as many insist.) I just wished the people in attendance that night had chosen an iHOP. Grade A

9. Alternative Fund Models Gain Momentum. 2010 undeniably brought creativity back to the structuring of investment funds. The clearest winner was the Pledge Fund, which never really went away but, rather, benefited from renewed interest in seed stage investing. While the emergence of novel fund models was partly an answer to a tough venture fundraising environment, 2010 also brought new categories of funds that were derived for specific purposes—such as to purchase early employee and angel investor stakes in popular technology companies. Grade A

10. RIP the 2 & 20 Fee Model. Tough fundraising environment or not, the 2 & 20 model is alive and well and remains baked into the subscription agreements of a majority of venture firms. That said, few new venture funds were actually raised in 2010, raising the prospect that should 2011 be similarly difficult for fundraising this debate may re-ignite. Grade C+

In summation, I’ll give myself a B+ average. A few items were clear winners and there were no glaring missteps. Share your thoughts here. In next week’s column I will issue my Top Tech Predictions for 2011.

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One Response to “My 2010 Predictions: A Look Back”

Trackbacks/Pingbacks

  1. 8 Tech Trends for 2011 « Adventure Capitalist - January 14, 2011

    […] month, we looked over our 2010 predictions and conducted a fairly detailed post-mortem. As such, let’s jump right into a discussion of the themes and trends that I believe will […]

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