INSIGHT: Investment Trend Predictions For 2014

Wearable tech, big data and the sharing economy all generated significant amounts of VC funding last year and will continue to receive investment during 2014. E-commerce, mobile and the digitalisation of health and education will also be key areas of investment this year. Here's what to look out for.

1. Big Data – Opportunity Remains Wide Open

Big data will continue to attract big bucks this year. StrategyEye estimates VC firms poured some USD3.7bn into big data companies in 2013. That total is inflated by huge rounds from MongoDB, which pulled in USD150m and Palantir, which took around half a billion last year, but even without them there is a massive amount of investor interest in this  sector.

And that comes as little surprise. Content might be king, but then surely data is the ace of the pack. As consumers spend more online, watch more online, talk more online – live more online - they are generating vast amounts of data. That’s pure gold dust for consumer-facing companies and businesses. Not to mention advertisers.  Thus the appeal of firms that grapple with that data to transform it into intelligence they can use to better target customers.

The opportunity in sectors like business intelligence and security are even bigger – both will continue to see heavy backing, and not just in the heavyweights. In 2013, Sqrrl, which develops database software for big data apps took money, as did Indian firm Heckyl, which provides analytics platform for financial companies. The sheer scale of the market means that while big players are emerging, there’s still space for new ones to gain a foothold.

¤ Business Intelligence: LIVE deal data

¤ Web Analytics: LIVE deal data

¤ Cloud Computing: LIVE deal data

2. Marketplaces – Sharing Economy To Capture New Wave Of Investment

If online shopping was the first wave of digital consumption, then sharing is the second. This year the online marketplace space will continue evolving around communities of members collaborating, exchanging and sharing. Last year saw an explosion of investment in rental and peer-to-peer exchange services across every vertical from holiday bookings to car hire to textbook hire, dog sitting and office desks. StrategyEye counts USD1.8bn worth of investment in online marketplaces across 201 deals in 2013. This year investment in niche services will drive that figure even higher.

Figureheading the nascent, but rapidly developing, sharing economy is Airbnb. The firm grew from an advert for an airbed and breakfast posted in 2007 to a site that had notched up 4m stays at the beginning of last year and 10m stays by December. Multiple copycats are springing up in its wake. And there’s plenty of room for them, which means there will continue to be investments in clone firms this year.

Airbnb’s growth is driven by the same consumer demand for access – rather than ownership – that is driving the rise of subscription services like movie renting service Netflix or online music streaming firm Spotify. Changing consumer attitudes and growing trust in online services is driving a shift to collaborative consumption and investment in services offering online rentals and hires will continue to rocket this year.

¤ Marketplaces: LIVE deal data

¤ Online Music: LIVE deal data

3. E-commerce – Investment Shifts To Emerging Regions

E-commerce had another big year for VC investment in 2013. There were a total of 284 deals in the sector globally, with VC firms pouring USD5.3bn into 239 disclosed rounds. That torrent of funding will not abate this year. But it will surge down new channels as investors look for an early land grab in untapped markets such as Asia-Pacific, the Middle East and Africa (MENA).

One in two VC investments in e-commerce was made in a US company last year, and it will continue to dominate for some time, but in 2014 there will be a decisive move toward investing in companies operating in high-growth developing regions as the tide of e-commerce investment shifts toward emerging markets. Disappointing earnings from Amazon, eBay and Tesco highlight slowing growth in saturated markets. Their investment in areas like the Philippines and India point toward the promise of emerging regions for e-commerce investment and where they follow, the tide of investment will follow.

¤ E-Commerce: LIVE deal data

¤ E-Commerce Software: LIVE deal data

4. Mobile Advertising – Innovation Needed To Attract Investment

Being mobile-first is no longer a differentiator. With smartphones and tablets fast-becoming the de facto platforms for accessing the internet, ecosystems are maturing and the cream is rising to the top. Mobile advertising is one of these, with the format set to account for nearly a 10th of overall ad spend globally by 2016, up from just 2.7% in 2013.  

There is certainly scope for mobile ad startups to grab VC dollars. Just 17 pure-play mobile ad startups bagged funding in 2013, raising a combined USD157.5m compared to 66 deals for broader digital ad players, which landed a total of USD494.2m. That’s not unexpected given the maturity of the wider predominantly desktop, digital ad market, but if mobile ad startups want to begin to close that gulf, they need to show investors the future of the market.

With banner and display ads – mainstays of the desktop ad space – receiving criticism from many corners, voiced loudest by BuzzFeed founder Jonah Peretti, advertisers are being forced to innovate faster than before, displaying new ways to grab consumers’ increasingly short attention spans.

An example of this is the rise of rewards-based advertising, with firms like Kiip integrating with app developers to offer consumers incentives from brands at moments of achievement. The San Francisco-based startup claims to have click-through rates of 8%, 10 times the industry average and investors are clearly impressed, with the firm bagging funding in August. Expect the spread of VC dollars to mobile ad startups to rise significantly this year, but to a wider breadth of offerings covering areas like native ads, analytics and programmatic bidding as the market matures.

¤ Mobile Advertising: LIVE deal data

5. Wearable Tech – Deals To Rocket, But Investors Remain Cautious

There’s no doubt that VC investment in wearable tech startups will balloon in 2014. This is the year tipped as a definitive one for the nascent industry, in terms of both product releases and adoption. Some 16 startups raised a combined USD160.5m throughout 2013 and that will rise significantly this year.

But while the number of deals will rocket, the combined value of these investments is likely to trail, with investors wary of ploughing too many dollars on a market that remains unproven. It is also unclear what form factor, if any, will succeed most with consumers. Google still has no date for the mass rollout of its augmented reality specs, Google Glass. Samsung is yet to reveal initial sales figures for its Galaxy Gear smartwatch and consumer appetite for wearable devices beyond the more established health and fitness tracking market remains largely unidentified.

Expect smaller bets placed on a wide range of startups covering a number of different form factors. But Apple’s decision to finally launch a smartwatch could change all that and catalyse a market that currently promises a lot, but is yet to deliver.

¤ Wearable Tech: LIVE deal data

6. Online Health And Education – Investment Surge

Fundamentally, investors are interested in the disruption of existing business models. Education and health have long been areas ripe for digital disruption and 2014 will see an increasing amount of VC investment into both areas.

The digital health market is a hot area for investment as demand for startups attempting to try to find a way to make the healthcare industries of the world more efficient increases. Others focus on consumer wellbeing with health and fitness devices and apps to monitor diets, exercise and goals. Investment across the industry surpassed USD1bn globally last year shared across 87 deals, according to StrategyEye deal data, more than five times 2012’s total. While that growth rate is likely to slow in 2014, investors will continue to place their bets on the future of the healthcare and fitness industries.

Though digital education is a less mature market, a diverse ecosystem is emerging, tackling everything from teaching at all levels to corporate training. Overall, 68 startups raised a combined total USD409.9m.2m in 2013. That figure could well double this year as leading startups including Lynda.com and Open English, profiled last year, continue to prove their business models.

¤ Digital Health: LIVE deal data

¤ Digital Education: LIVE deal data