A Brave New World [Part 2]
Below we recapitulate on some of the key themes that saw major developments in 2021, which will shape the new world and open up enormous opportunities for building and investing into digital platforms — our overarching theme at Samaipata:
1. Artificial Intelligence (AI) and deep learning in our everyday: AI has slowly but surely crept into our everyday lives and we have grown trust and confidence in its abilities. While it isn’t yet as futuristic as we’ve imagined, it is our Siri and Alexa, our Face ID and our Netflix recommendations that we use daily. The technology is improving at a faster pace and we are excited about even deeper applications of AI that change the way we live including autonomous driving, diagnosing health conditions or predicting our shopping cycles. The exponential decrease of the cost of computing power (based on Moore’s Law) was a key enabler of the wave of software innovation and adoption we have witnessed in the past decade. Similarly, the cost of open source AI training is decreasing at an even faster pace and therefore we expect more and more business models being built upon state-of-the-art AI. Many of our portfolio companies are already leveraging (either directly or indirectly) AI including Eolas, Flyfut and Karmen while others plan to use AI to achieve that very vision.
2. Web3 is a brand new platform: Although Web3 was probably one of the most hyped words of the year, they were with good reason. We see Web3 as a brand new platform in itself, a blank ‘space’ waiting to be built on, waiting to be defined by the very things built on it. What is fascinating to us is that at first, this space was barely tangible, but with more users joining and validating it (and now with millions of people with decentralised wallets), the space grew larger, more ‘real’ and with greater potential…almost growing too quickly for itself. While early projects have emerged, we believe there is opportunity for more infrastructure and rails to be built before a mainstream migration. Web3 is rebuilding from scratch some of the foundations of modern society in the digital world. For instance NFTs have enabled scarcity and therefore unlocked the full value of private property in the digital world. DAOs are enabling collective project governance. DeFi is replicating the financial system on a decentralised basis. For now, these use cases remain narrow and flawed in many ways, but we are only scratching the surface.
In 2021, for the first time, wealth in digital assets surpassed market caps of the most valuable companies, which has gone a long way to substantially validate the asset class. Bitcoin surpassed $1T and total cryptocurrency just touched over $3T by November last year (CoinMarketCap), compared to Apple at ~$2.8T and Microsoft at ~$2.6T. Governments and economies, such as El Savador, have started to embrace digital assets and are increasingly paving the way for mainstream adoption. Notwithstanding the dollar figures and the noise, adoption in terms of users is still in its infancy. If we use NFTs as a proxy, OpenSea, arguably the largest NFT marketplace in the world, counts half a million monthly active users, which is still a rounding error in the global internet population of 5B people.
Despite the recent market correction across the crypto world, the fundamental metrics, in terms of investment activity, venture projects in the pipeline, liquidity, product innovation, and many other variables, show an industry that continues to grow at full speed.
3. From Mobile to the Metaverse, a platform shift. Metaverse — This was another important theme in 2021, especially after Facebook’s rebranding to Meta in late October. Although the term “metaverse” was coined by sci-fi writer Neil Stephenson, its current usage has become more ambiguous, there is not a clear consensus on what that is. We could think of the metaverse as some form of virtual environment that supports social interactions, remote work and digital transfers of value, a new platform formed by several existing building blocks.
The vision is so ambitious that bold moves of tech behemoths such as Microsoft’s recent acquisition of Activision Blizzard or Facebook’s recent rebranding do not come as a surprise.
4. Next generation ecommerce: The pandemic has drastically fast-forwarded ecommerce adoption from businesses and consumers alike. The ecommerce infrastructure stack continues to evolve driven by horizontal specialisation. The role of CMS platforms as interoperability enablers and the level of investment and innovation in ecommerce infrastructure continues to deliver massive efficiency gains that clearly illustrate the ‘productivity dividend’ distributed by the pandemic. Fulfilment-as-a-service for instance, is a great example and an opportunity that we are pursuing through our portfolio company BigBlue. Amazon’s vertically integrated empire will have strong contenders enabled by the ecommerce stack of the future — from payments, to financing or advertising. A whole new universe of apps is being built to pave the way for the ecommerce of the future. This new wave of companies will address the challenges of tomorrow such as inhibited paid marketing efficiency in the age of iOS 14 privacy policy, or new open banking infrastructure.
5. Tech for good: Environmental and social sustainability is the challenge of our generation. Societal awareness has increased significantly in recent years, which is driving a tectonic shift in consumer behaviour, political and regulatory action and business decision-making. 2021 has seen a breakthrough in this regard, with countries like Germany taking the lead, and the EU following closely. This transformation will shake up entire industries and result in endless opportunities for tech-enabled solutions that will make sustainability operationally and economically viable. The fashion industry for instance, is the second most polluting industry in the world. We know this from a top down view but tracing sustainability across the intricate fashion supply chain is a nightmare if not a utopia for most brands, let alone consumers. Our portfolio company Retraced offers a platform where suppliers and retailers can granularly trace the origin of each piece of garment. Because information precedes action, fosters accountability and builds trust with consumers.
6. Embedded Fintech: It has been a while since startups tackled financial services. However, we have witnessed an acceleration of the momentum and traction of tech innovation in the fintech space. The likes of B2C fintechs like Klarna, N26, Revolut, Monzo, Trade Republic and Starling raised close to $5B in total. Payment companies like SumUp, Mollie and Checkout.com added c. $2B. Looking at our portfolio companies like Fintecture are disrupting payments, one of the most defensible assets of the financial system. In addition, market conditions and the consolidation of B2B fintech have expanded the type of business models that early stage startups can pursue and VCs accelerate. By drawing debt or leveraging plug-and-play embedded fintech solutions startups can access previously untapped markets with innovative tech-enabled solutions. Capital-intensity allows these companies to play the game, but they will win it through technological competitive advantage. We recently invested in Karmen, a French company that will provide non-dilutive financing to SaaS companies through a seamless process. We have also invested in Vivla, a proptech that will tackle the second-home fractional ownership market from Southern Europe.
A common thread for us through all these developments and trends is that Europe is gaining ground on the global stage and emerging as a leader in the tech frontier. Many factors support the European ecosystem but first and foremost, progressive stances and political/regulatory tailwinds in critical sectors of the future have cleared the path to European tech leadership in these spaces. Tech is very high in the current European political agenda. In addition, technology will play a central role in other priority topics of the European political and social agenda like sustainability, healthcare, economic reconstruction, sovereignty and demography, to name a few. The EU’s consistent approach to privacy, pioneering regulation of innovation enablers like open banking and ambitious sustainability goals lay the groundwork for new business models. This is complemented by direct and indirect financial support through instruments like the NextGen funds and the European Tech Champion initiative (amounting to €750B and €10B+ respectively) that address the shortcomings of the European private capital markets. All these initiatives strengthen Europe’s tech sovereignty, in line with the European Commission’s goals, and contribute to solidifying Europe’s position on the global stage.
Consequently, this has set off flow-on effects that continue to reinforce this fact. Europe is taking up a greater share of the global venture capital market, representing ~20% of global venture funding vs ~18% last year, at the expense of established markets such as the US whose share fell from ~56% to ~53% (Pitchbook). We are also seeing this with talent too, as trends such as remote-first teams and global talent shortages favour Europe with its diverse and desirable cities and generally lower cost of living compared to established tech hubs, such as Silicon Valley. Emerging stars from Europe such as Spotify, Klarna and Northvolt are becoming global heavyweights and pioneers in their field, which is critical to role model budding entrepreneurs and to keep the European ecosystem spinning. All these wins and tailwinds so far places Europe favourably in the tech race and we cannot be more thrilled at Samaipata to be right at the centre, ready to propel Europe into the future.
Overall, at Samaipata we believe 2021 has marked the end of the beginning of the great European tech explosion. The past two years have structurally transformed and strengthened the foundations of technology innovation and investment in Europe. Cyclical exuberance and 2020 flow-on effects observed in 2021 will probably be out of the picture in 2022. Which will allow us to see a cleaner picture of what the run-rate pace of VC-backed innovation looks like. The European tech flywheel is on and will deliver outsized value to the continent in years to come. At Samaipata we are positioning ourselves to be a part of Europe’s bold pledge towards technology and innovation.
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