Venture capital firms invest in potentially disruptive technologies with the hope of profit, then keep watch for further advances that could overtake their existing portfolio companies. All this is done while they guide startups through other external challenges such as fundraising droughts and overall market downturns.
Scott Beechuk, a partner at Norwest Venture Partners, is one of the tech industry observers invited by Xconomy to look back at the technology developments of 2018, and also forecast some trends he expects to see in 2019.
Palo Alto, CA-based Norwest weathers the uncertainties of technology and the economy with an investing strategy based on diversity. The VC firm backs seed-stage startups up through late-stage companies, and spreads its funds across sectors from consumer goods and enterprise software to healthcare services.
Beechuk (pictured) concentrates on enterprise software-as-a-service (SaaS) companies and marketing service firms, with a particular interest in the power of artificial intelligence (A.I.) and behavioral analytics. He serves on the boards of consumer marketing company Bluecore; multi-channel mobile marketing firm Leanplum; marketing analytics company Singular; and employee engagement platform Socrates AI.
Here are his insights, shared with Xconomy via e-mail:
Xconomy: What trend or event defined your industry in 2018? What are the implications for 2019?
Scott Beechuk: Enterprise implementations of A.I. and ML (machine learning) heated up in 2018 with most major cloud vendors bringing business applications to market that help automate tasks to reduce human workload. In 2019, we will see this trend continue with startups powering innovation beyond simple automation, finally delivering on the promise of predictive intelligence for business.
Certain industries will be transformed earlier than others, such as marketing technology. CMOs (chief marketing officers) are evolving into CGOs (chief growth officers) where the CEO and board hold this executive accountable for top-line revenue acceleration.
Enterprises that use advanced machine learning and deep learning algorithms will acquire a distinct advantage. These products and technologies will improve targeting, create more contextually relevant conversations, improve customer satisfaction, and ultimately drive more buying decisions.
X: What are the emerging technologies that make it harder for you to predict how well your startup, your startup investment, or your company’s new initiatives might remain relevant in the market, for a time period long enough for them to succeed?
Beechuk: Advances in public cloud technology around security and scalability are enabling the migration of complex cloud services away from privately hosted environments to the likes of AWS [Amazon Web Services], GCP [Google Cloud Platform], and [Microsoft] Azure.
Startups focused on helping customers manage their on-premises business application stack will feel increased pressure by the public cloud providers and will be forced to evolve their models to survive.
Startups and established players alike that build on-premises or private cloud enterprise security, networking, and DevOps tools are at risk of becoming disrupted by low-cost, off-the-shelf public cloud services.
While some sectors such as financial services and healthcare will continue to run and manage their own data centers for some time, advances in public cloud-enabling technologies like CASB (Cloud access security brokers) and secondary storage are motivating these industries to move large components of their IT stack to public cloud to cut costs and improve elasticity.
X: For VCs on boards, or company leaders: How are you planning for downturns in the economy, stock market corrections, and other broad-based business challenges in 2019?
Beechuk: At Norwest we have the flexibility to invest across all asset classes.
When we invest in companies in their earlier stages, we still have years ahead to build out the team, the product, and the mature go-to-market strategy.
Chances are the economic climate will be very different at the time these venture businesses are ready to exit.
With later-stage companies, market volatility can put downward pressure on private company valuations, so we expect to see some later-stage rounds get funded at lower valuations.
For boards and startup management teams, finding the right balance between investment in growth and discipline around managing cash burn is always a hot topic.
However, as market turbulence and uncertainty mount, more rigor around managing cash and reducing overhead becomes a top priority for our boards. Maintaining focus on business fundamentals (and in my portfolio case, SaaS metrics) helps ensure that great companies can both continue to attract top tier investors and secure favorable terms on debt facilities during challenging economic periods.
[Editor’s note: This is part of a series of posts sharing thoughts from technology leaders about 2018 trends and 2019 forecasts.]
Photo courtesy of Norwest Venture Partners
