Earlier this week, Heartcore released Consumer Technology Trends 2020, a 42-page report combining quantitative analysis of consumer tech in Europe, their predictions and an articulation of their investment thesis.
Heartcore is an early stage VC fund focused on consumer technology investments, they backed over 70 companies, and their portfolio has generated “over €4 billion in value" so it's safe to say they know a thing or two about consumer tech.
Like I did with the EU data regulation proposal a few weeks ago, I decided to dust off my Aeropress, make some fancy coffee and dive into it.
The result is one of my favorite editions so far – an overview of 7 consumer tech trends in Europe, and for each one I picked a sub-trend, a powerful insight and an interesting company.
Let's dive right in.
📈 One trend: there's a lot going on in retail and DTC right now but for me it would be the shift away from luxury and towards sustainable mid-market options, driven by the “I am what I buy” mentality of millennials and Generation Z.
💻 One company: Vinted, a site where consumers can sell and buy second-hand fashion, has raised €128 million in a round that is being led by Lightspeed Venture Partners just last year.
🔎 One insight: something to keep in mind if you are building a retail or DTC company: build an audience before launching, be efficient with capital because VC might run out and focus on retention because reselling is cheaper than acquiring.
📈 One trend: the unbundling of the big-box supermarket into three different subsets of the grocery market.
- Convenience shopping on platforms with local delivery infrastructure like Glovo.
- Pantry shopping by pure online providers with centralised warehousing like Boxed.
- Fresh and speciality from dedicated providers and ‘farm-to-table’ models like Mercato.
💻 One company: La Fourche, a members-only online buying club for organic and natural staples that shipped 50,000 boxes in the last year.
🔎 One insight: I have very strong opinions about the future of the food delivery stack and the consolidation that we’ll see over the next few years. From the report:
We expect margins to compress further, and to see significant horizontal consolidation to unlock economies of scale (think of the €6.9bn deal between JustEat and Takeaway); or vertical integration to capture more of the value creation in the entire stack (see Delivery Hero’s acquisition of Honest Food, for instance).
Long term, it remains to be seen whether the capital markets will deem that these platforms are meant to be standalone businesses, or bundled within larger consumer offerings.
Will we ultimately see an Uber + UberEats + Jump all-inclusive subscription, for instance? Or Deliveroo as part of Amazon Prime?
📈 One trend: corporate travellers account for 25% of the €650 billion European travel industry and no one, up until now, was serving them correctly. The key thing here is that the buyer (corp who has to deal with bookings, receipts, expenses, etc.) is different than the user so the company who can sell to one and take care of the other one will win.
💻 One company: TravelPerk is a travel management platform that helps corporate travelers book their trips. Here’s Avi Meir on Techcrunch a few months ago:
“The team has grown 250% since January and bookings on the platform have increased by 300% (...) The number of active users has grown by 150% this year compared to last. When you look at those two numbers side-by-side, it demonstrates that not only are we adding customers, but our existing ones are booking more often.”
🔎 One insight: in travel tech, particularly lodging, the core concern from investors is fixed-term rental costs and fluctuating revenue per available room in an industry highly sensitive to economic cycles (or black swans, like the coronavirus).
This might not be a zero-sum game industry across the board, but you better fill up those war chests: capitalisation will be a competitive advantage in a downturn (which I believe already started).
📈 One trend: Heartcore believes (and data shows) that people change location more frequently, feel lonelier, and increasingly favour access over ownership. But everybody wants to live in the city even as prices go up and up. The result: co-living.
We’ll see new providers building co-living concepts optimised for specific target
groups. These not only include young professionals, but shared living for older people, serviced living for families, digital nomads, home workers, people of different interest groups or sustainable living concepts.
💻 One company: Colonies helps young people in big cities find an apartment without all the hassle involved in actually looking for an apartment. They raised a $34 million funding round this week.
🔎 One insight: the WeWork debacle had ripple effects across the ecosystem so pay attention to profitability. You won’t lack capital (a low-interest environment means a lot of capital available) but a company that can’t show a clear (not Softbank’s WeWork turnaround slide) path to profitability is a dead company.
📈 One trend: as Heartcore puts it, "the lack of retirement savings may be one of the biggest socioeconomic risks of our time." It’s an incredibly high-stakes problem that no one can touch or they risk their own version of the Gilets Jaunes.
The concern is that pension schemes are already grossly underfunded, low interest rates are low and falling even more, and Western demographic is ageing at a ridiculous rate. This problem (and the opportunity behind it) will get bigger over time, but you need to have the guts and the patience to tackle it.
🔎 One insight: in a low interest rate environment (like the one we'll be in for a while, particularly after the Fed cuts this week), money is looking for a place to earn but young professionals have nowhere to put their savings on. If you can solve the information asymmetry between the people on the ground and institutional investors, and provide a solid investment vehicle for these people, you are in for a ride.
📈 One trend: I always wondered why femtech (with such a gigantic, underserved target market) was considered a niche. Not anymore - femtech has surpassed €1 billion in funding since 2014, of which 75% was raised in 2019 alone, driven by the democratization of health care, testing and female care.
💻 One company: Natural Cycles introduced the world's first and only digital birth control method a few years ago and now has 1.5 million users.
🔎 One insight: there’s a positive loop in femtech that is worth strengthening. As Heartcore states, “many female founders have made it their mission to empower women” and as a result, many investors (particularly female as well) have made it their mission to back those purpose-driven founders. When these companies exit, money will cascade down towards these female founders and investors who hopefully, deploy it again in the same fashion.
Media + Entertainement
📈 One trend: I believe eSports is the biggest industry (almost) no one is talking about. Viewership already reaches an audience the size of the four largest North American sports leagues (NHL, NBA, MLB and NFL) combined.
Viewers are fanatical (an average Twitch user spends more than 95 minutes daily on the platform) but severely under-monetized. Esports leagues in the US get $54 per fan per year, while eSports only managers to grab $4. Someone will own that gap.
💻 One company: Maestro.io licenses their streaming platform to players, tournaments and teams. They are perfectly positioned to bring eSports to the masses by adding an A.I.-powered “Beginners Level” layer on top of streaming, making it easy for people who dont’ know a thing about eSports to understand what’s going on and get hooked.
🔎 One insight: engaged audiences that are severely under monetized present an incredible opportunity. Another example is podcasting, where as a result of fragmented inventory, a frictioned buying process and and hard to measure ROI, monetise at $0.01 per hour, 10 times less than radio.
My concern with consumer tech
This is how Heartcore starts the report.
Last year was an eventful ride for the consumer technology sector. Household names such as Uber, Lyft, Pinterest, Peloton, Beyond Meat, Revolve and The RealReal listed publicly, totalling $131.9bn of combined market capitalisation.
There were significant consumer merger and acquisitions (M&A) transactions: PayPal acquired Honey for $4bn, Google bought Fitbit for $2.1bn and Uber purchased Careem for $3.1bn.
As you can see, acquisitions are a big part of consumer tech, and one of the main reasons why companies start or join consumer tech startups.
2019 was an eventful ride indeed, but 2020 might present a new challenge. There's a new trend in evidence, as displayed by the actions of the FTC blocking Harry's acquisition, and the UK's Competition and Markets Authority meddling with companies and launching lengthy investigations.
Last year alone, the CMA blocked 3 acquisitions and at least five more were abandoned due to the threat of an investigation.
If this problems exacerbates, which I think I will due to the backlash against tech and the need to "do something about it", it will pose a big threat to the entire ecosystem.
Here's Ben Thompson of Stratechery on a brilliant article titled First, Do No Harm (paywall) imagining a world without acquisitions.
Another way to consider these benefits, meanwhile, is to think about a world where acquisitions by large tech companies are severely constricted or banned:
- New technology would be diffused far more slowly (as the new startup scales), if at all (if the startup goes out of business).
- The amount of investment in risky technologies without obvious avenues to go-to-market would decrease, simply because it would be far less likely that investors would earn a return even if the technology worked.
- The risk of working for a startup would increase significantly, both because the startup would be less likely to succeed and also because the failure scenario is unemployment.
I don't know you, but that is not the world I want to live in.