In Season 2 of "In Visible Capital," we took a closer look at emerging technology trends during the pandemic with investors, founders, PitchBook analysts and other industry experts. Over several months, we looked at shifts and opportunities across healthcare, foodtech, mobility, the supply chain and more. In this week's episode—the Season 2 finale, sponsored by Gray Scalable—host Lee Gibbs talks with the head of our Emerging Technology Research team, Paul Condra, about the acceleration of infosec, enterprise software and telehealth startups amid COVID-19, as well as what kinds of startups are receiving funding and the overall shift toward later-stage investing.
Listen to all of Season 2 and subscribe to get future episodes of “In Visible Capital” on Apple Podcasts, Spotify, Google Podcasts or wherever you listen. For inquiries, please contact us at firstname.lastname@example.org.
TranscriptToday's episode of "In Visible Capital" is sponsored by the recruiting in HR Professionals at Gray Scalable. Gray Scalable pioneered the embedded recruiting model: an innovative hiring process which places experience recruiters and consultants alongside your teams during your business' critical growth stages. With a focus on short-term results and long-term value, Gray Scalable provides compensation consulting and pay equity analysis, training and workshops, and HR support—developing customized programs to engage your people and advance your culture. Learn more at grayscalable.com.
Lee: Welcome to "In Visible Capital." I'm your host, Lee Gibbs. Throughout Season 2, we've been taking a closer look at emerging technology trends and their acceleration through the COVID-19 pandemic. We spoke with PitchBook analysts, investors and industry experts to discuss healthcare, foodtech, mobility and supply chain. Today, we're wrapping up the season, and to do so, we're joined by Paul Condra, our head of Emerging Technology Research, to dig into a few other trends. Paul, welcome to the show.
Paul: Thanks, Lee. It is great to be here.
Lee: Tell us a little bit about your role on the emerging tech team at PitchBook.
Paul: As you mentioned, I'm the head of the emerging tech team, and we're basically a team of six analysts that look at evolving trends in technology kind of across the venture capital ecosystem. So we all cover various segments, healthtech or fintech or agtech, you know, several of those that you mentioned as well. And we're really looking at, you know, what's what's happening on the venture level. So where are their early-stage investments, late-stage investments being made? What are the startups being funded? What kind of technologies are they building and creating? And how are these technologies disrupting legacy incumbent providers, and what kind of new markets are being created?
Lee: Paul, there's been no shortage of emerging spaces for you all to track during the pandemic and the impacts that the pandemic has had on those emerging spaces. Can you just maybe give our audience a little bit of a sense what it has been like to be covering these emerging technologies over the course of the past year?
Paul: I thought it was pretty fascinating to be covering everything happening from a venture kind of tech perspective prior to this year and coming into this year. It's still very fascinating. And I think, one of the most interesting things about the technology industry is that it's, especially at such [an] early stage, that it's somewhat insulated from broader trends happening in the economy. I mean, big, long technology disruption that's going to happen over the next 10 years isn't necessarily going to be altered dramatically by things like temporary economic disruption, you could call it. I mean, clearly, the pandemic has, I think, accelerated technology in many ways and that a lot more companies now need to get in front of ecommerce and working remotely and just finding new ways to stay relevant in a much more digital world. And also, how do we keep our mission focused and keep our employees focused when they're all distributed across these different environments? So there's actually been, I think, a much greater focus on technology. You know, how it's going to help function the economy, how it's changing throughout the past year. But I think it's sort of part of a continuum that was, you know, started well before this pandemic existed.
Lee: And what are these trends that you and your team have really narrowed in on is, is this shift of investors focus toward later stage investing, and that was happening early on in the pandemic. What have been some of the outliers? Are there still investors focusing on those late stages? Are there are a lot more focus in early stage development. Can you give us a little bit of an understanding there?
Paul: I mean, from what we can see in the data, the early-stage activity is still very robust. It's just the funding sizes are a little bit less than they they may have been otherwise. And I think it's because there's some more questions around the business model in this kind of environment. You know, how are you going to build and grow when you're fully remote and there's this economic kind of dislocation going on, but then also later-stage companies that they're down that trail of disruption and you can see the growth there more, you know, product market fit is their customer adoption is there. We know these companies are on a track to getting bigger. And it's a little more of a scramble, I think, among investors to say, let's fund these businesses now, maybe accelerate some of our rounds that these businesses were probably going to have maybe a year out. We can do it now. We want to get our capital to work. And these seems to be the winning companies. So you've had more capital concentrated in successful later-stage companies and less in early-stage companies. But there doesn't seem to be any shortage in terms of like new technology or new startups that are emerging.
Lee: And Paul, among the trends that you've been tracking and funding, are there particular technologies that have seen a decline in funding over the course of the pandemic?
Paul: I don't think there's been too many areas where you've seen really big notable drops. I think that some types of technology have been a little bit more negatively impacted on the implementation side, one of which would be IoT, for example, where it's more about building hardware, infrastructure, networks. And so people actually having to go out and put sensors in factories or, you know, put in networking infrastructure, connecting certain buildings or, you know, connectivity solutions and things like that, where you actually need to have people out kind of doing this. And it's less focused on just software and delivering software through a mobile app. And I think just because of the pandemic, there's been a little bit more hesitancy to do that kind of work. People just want to be safe. They don't want to send people out to do that kind of stuff. So I think that's where you saw a little bit of a pullback and a little bit of a temporary reduction in activity, though I don't think that's a really long-term change in the demand for that type of technology. I think it's just a sort of a temporary pullback.
Lee: And one of the realities that you acknowledge is this move into more and more remote work, that being obviously widespread across all industries. The focus, or one of the areas of focus that has come with that, is infosec. You know, due to this massive shift in remote work, you know, that increased reliance on data security needing to be maintained. Can you speak a little bit to maybe that sector and its activity of the past year?
Paul: There's been a tremendous amount of activity. Obviously, we have an analyst that covers infosec, Brendan Burke, and he does a great job and a tremendous amount of demand for solutions that secure the enterprise beyond the firewall. So all your employees are now working from home, and we need to make sure that all those endpoints are secured. So they might be using a lot more of newer, different devices. Companies, a lot of employees already had laptops, but a lot of them did not. And so they had to get new devices and start using them remotely. And so you needed to find a way to ensure that there is security from wherever it is they're working, you know, because now you have more network vulnerabilities and you have, I think, all of us have seen a big increase in just like phishing emails since you've been working at home. I've definitely noticed that. So there's just, I think, definitely a more of a concerted attack from hackers or people trying to commit cyber espionage to kind of exploit the new vulnerabilities of the distributed workforce. So that demand for endpoint security has definitely ramped up. We've seen startups go public over the past year. They've done tremendously. And that just seems like we already kind of knew that that shift was happening. Organizations were moving from centralized, you know, technology infrastructure to hybrid to putting things in the cloud to using different kinds of running technology, like different kinds of processing technology that exists and distributed data centers. So, yeah, there's a new kind of security paradigm that needs to be put in place to secure all that. And we really still kind of just getting underway in locking all that down.
Lee: And to put some numbers to that growth, in his research, Brendan estimated that the infosec vertical will have reached $148 billion in 2020 through the pandemic and expected low double-digit growth to resume in 2020 one as well.
Paul: I mean, I think that there's just a long secular opportunity to really kind of re-architect security in the way it was from on premise centralized firewall type models to now this distributed architecture model and the new threats just keep arising. You know, the thing is, you're always kind of in this game of chasing what's next.
Lee: So then infosec seems like one example of how the everyday work experience has changed for many people. I'm interested to hear more from you on some of the emerging technologies that you've seen grow because of this "un-locationing," as you've called it in the past.
Paul: We've kind of been able to watch these trends pop up across the verticals that we that we cover their spend their time on. I mean, enterprise software, probably the most obvious example. I think another way that this is manifesting itself is in the healthcare industry, just a lot more willingness now and effort to put in good telehealth infrastructure. And along with that is e-pharmacies are getting your prescriptions delivered. And we're starting to see health insurance providers offer these kinds of at home telehealth kits, if you will, sort of like checkup kits that you can use from home and then you can schedule an appointment with a doctor online to get like a virtual checkup. So a really interesting converging trend, I think, in healthcare between mobile telehealth, automatic at home, delivery of your prescriptions and then integrated insurance. So that's an interesting trend that is, I think, pretty early in its evolution. I think a lot of people don't do a lot of healthcare online. And so that's something that's going to change remarkably. And then I think AI is another really important area of focus, probably something that would have been happening regardless of the pandemic. But we've definitely seen, I think, an inflection in terms of AI adoption, the willingness of organizations to just say, you know, how can we use AI to make our applications work better or to improve the way our process is run internally in our organization. And so you're starting to see a lot more companies find ways to apply that to the types of tools and applications that they're selling to organizations. And it's becoming a lot more mainstream. You know, you even have two public companies now, Palantir, C3AI, that are bringing AI solutions to the market a bit more aggressively. And I think the big platform providers like Google and Microsoft are also going to be investing heavily and how they can help their clients use AI in one way or another.
Lee: You know, I can't help but notice that there's an obvious coupling between the technology that's being made available and developed with also just the ways that people are now doing business in the way that information is shared. You know, your healthcare example, I think is a perfect one. You know, thinking back to our episode, the relaxing of certain regulations around what can be shared, where people can access healthcare information, that is, providers really loosened up to make some of the work from home realities a reality. And I'm sure that there are other examples across industries to where this really will be interesting to see how this new rhythm of doing business, what stays after the pandemic and what goes back to the way things were done before.
Paul: I think a lot about delivery because, everybody has now shifted to getting mostly food, their groceries and their meals delivered a lot more. I think we're slowly feeling more comfortable going out and doing this stuff again in public, and restaurants are starting to reopen. So what I wonder is what kind of potential demand cliff do we have six months from now when most people are vaccinated and restaurants are fully reopened? Because what's happened over the past year is a lot of these delivery service providers have made the experience just a lot better. They've built better apps. The menu is easier to navigate. There's more options for how you want your food delivered, and there's more providers. And just the service has just gotten better. And a lot of that depends on the technology that these companies have been investing in over the past year. So there's probably going to be a permanent step function in people that are depending on these delivery remote services, more so than they would have before. But you're still going to have a lot of people that just want to go back to eating in restaurants and getting out in public again. So I think it's just going to be interesting to see how these demand trends shift over the next six to eight months.
Lee: From the research you've done, what's your take on how investors are viewing that outlook? Are they investing in the same types of bets and opportunities that they were before the pandemic or are they seeing the future through a different lens?
Paul: I think that's a good question, that in some cases, in my conversation with investors, I've tried to get some interesting answers as well. It doesn't feel like there's been a huge shift in the longer term secular trends driving technology innovation that were present before this pandemic. I just think that there's been a really noteworthy acceleration of some of the adoption of these things over the past year, because people are they may not be working, they're at home, they can't really go out and socialize. So they're just online a lot more, and so they're using social apps, they're using delivery apps. And we're seeing that manifest itself and all of the kind of interesting online crises or whatever you want to call them that have been emerging over the last, since the start of the year. In terms of the the insurrection at the capital and this whole issue with GameStop. So I think that some of this stuff is putting stresses on our kind of social technological infrastructure in interesting ways that were not anticipated, but in terms of how investors are allocating their portfolio and the type of technologies they want to invest in, I don't know if that has changed things remarkably. I think there's some interesting societal impacts that have emerged that we're going to be working through through the next well, who knows how long—for years, potentially, right? But through the next year, there's going to be a lot more focus on what does it mean if Amazon de-platforms a company, or if Twitter has the ability to take down accounts that it deems unworthy or offensive or for whatever reason. And I think that's going to raise a lot of questions for service providers and vendors that are relying on those systems just to do business. And it's going to manifest itself in some way, shape or form in the investment landscape. But we haven't really seen it yet.
Lee: Well, I'd like to draw you back into another specific sector: Bitcoin. Continuing through the pandemic has been the mainstreaming of cryptocurrencies with more traditional investors kind of jumping on board as prices have soared. What are some of the opportunities within fintech to enable wider access to cryptocurrency?
Paul: I think a lot of the reason why the price of Bitcoin went up, why you saw a lot of demand for it last year and into this year was because a lot of the more institutional, traditional money managers started offering capabilities to store Bitcoin or purchase Bitcoin for institutional investors. And we started to hear more about institutional investors or corporates actually using their treasury to buy Bitcoin, for example. And so it's just that kind of slow, steady build. And by the end of the year, everybody's imagination has been captured and demand just kind of skyrocketed. And now we're in this position again, where Bitcoin has kind of calmed down and settled into this, you know, price zone where it is.
Lee: Well, I guess I have to ask you, you're talking about the kind of institutionalizing of the thing that was supposed to be outside of the institution. Is that trend a little antithetical to why it was created in the first place?
Paul: Definitely, there's this kind of this tension between a product that is in some way disrupting the very institutions that are investing in it. But if you're an investor and you kind of see the writing on the wall and say this thing is going to get bigger, then you need to have some exposure to it. It's a little bit more of a risk for the companies that have a business model that could be disrupted. So a traditional bank that does lending and payment processing it at some point, is there a new alternative financial system that they're kind of on the outside of or that they no longer dominate the way that they, currently do? And I think if you just look at the financial industry, it's not just what's happening in crypto or DeFi. It's also just what's happening with every other fintech. Companies like SoFi or even Robinhood that are just offering alternative financial products and solutions. They've got a better user interface, they've got a lower customer acquisition costs, and they're going after sections of the market that have just been ignored by legacy banks. A lot of times it's younger people. And over time, those platforms have gotten bigger—look at PayPal, for example, and you can see how big these companies have become. So it's clear that there's a power shift taking place in the finance industry, I think, from traditional banks, to fintechs and the blockchain piece of it is still pretty early, but that promises to add kind of a new level of disruption.
Lee: According to CoinDesk, JPMorgan reported that institutions are buying Bitcoin at three times the amount they were in the previous quarter. So real numbers by some of these real institutions that you're that you're referring to.
Paul: Yeah, I mean, and all these things just make it more legitimate and they make people feel more comfortable investing in it. And the reason you own Bitcoin right now is really just you're either speculating or you believe that it's this long term store value and maybe it becomes a payment tool at some point down the road. But there isn't really a functional purpose to it. It's managed to kind of capture the hearts and minds of society as something that could be a new kind of better kind of gold. And so if it's in its early stages of adoption, then you might as well own it now because it's going to go up in value. There's still big existential risks that Bitcoin is potentially made off-limits by regulators, it becomes a threat to fiat currencies, and so governments want to clamp down on it or that there is a broader market sell off and people decide that they want to sell their Bitcoin and that drives the price down again. So I think it probably sticks around for a long time. But in terms of like what the price is going to do over the next six to eight months, you know, nobody really knows.
Lee: And Paul, you mentioned fiat currencies. For some of our listeners that may not be familiar with that term, can you just clarify?
Paul: I just mean government-issued currencies, which governments generally use to stimulate their economy, or they either issue debt. And these are kind of the ways that governments can control the value of their currency and somewhat control prices within their economy.
Lee: And I want to get back to this trend that you mentioned earlier of de-platforming. How do you see this trend playing out ahead?
Paul: When I think about de-platforming, I think there's kind of a broader, thematic kind of story going on here around decentralized power structures. And that's really part of working remotely, it's part of blockchain, it's part of disruption, this whole idea that you have sort of the establishment and then you have technology that is being used in ways to kind of shift power from established providers to other networks or technologies or companies or retailers, whatever it may be. And what we saw over the last few months with the election and with what's going on with GameStop, for example, is this move by central technology platforms to kind of ban certain users from using their product. And so in Amazon, it was like deplatforming Parler, and Twitter banning certain users when the reasons you're giving are related to things that have been happening for several months. Obviously the events of January 6 are an extreme example—a bit of a different set of circumstances given what seemed to be a very immediate danger, and so, this kind of brings up this bigger debate of how much can we trust these centralized technology companies to be independent or neutral service providers? And what kind of guarantees do we need to ensure that they won't just de-platform me, whether I'm a retailer or I'm a company or I'm a consumer, whatever it is. And I've heard some chatter that in the technology space there are companies that may use Amazon as their cloud service provider. And there are there are a little bit concerned by this, not that they're doing anything that they think is necessarily bad or illegal, just that we want to be really clear on what the agreement is with Amazon and know what violates their policies so that we can't be sort of de-platformed just because some political event comes up. The timing of these things with Amazon, and with Twitter, and with the Reddit group with GameStop and all kinds of sounds like once there's a lot of social upheaval, unrest, a lot of controversy, that's when these things will happen. And I think people rightly kind of ask the question of, well, it sounds like kind of nefarious purposes or that you're taking these actions right when all this is going on. When the reasons you're given are things that were happening maybe three or six months ago. So, I think this is just going to be a broader debate around how much power do big tech platforms have and what kind of technologies can help decentralize those power structures. Blockchain clearly is one of them. I mean, all kinds of decentralized apps. Telegram has gotten very popular as a messaging app where it's all encrypted, so that once those messages are sent, nobody can hack into them, nobody can read them, and there's no way to kind of go back and determine who sent them. One example being Telegram, an encrypted messaging app that has seen a lot of popularity and downloads just over the past couple of months. Here's a platform where people can send messages. They can't be hacked and are somewhat immune to kind of the intrusions of government or others that might want to try to censor the platform.
Lee: Well Paul thanks for sitting down with us and providing additional insights to end the season. I look forward to seeing what you and team produce as you continue to track emerging technologies.
Paul: Thanks for having me, Lee, and I enjoyed the conversation. Anytime.
In this episode
Lead Emerging Technology Analyst at PitchBook
Lead Emerging Technology Analyst at PitchBook