By Shannon Jones
Kx Ventures is a strategic technology partner for entrepreneurs and companies seeking to build or grow disruptive technologies. Shannon Jones is based in London and is part of the Kx Ventures team which is actively evaluating candidate start-ups and other types of companies for partnerships with Kx and its parent, First Derivatives plc (FD) globally. In this blog, Shannon shares current insights from the investors’ point of view about the who, what and why behind technology innovation in the marketplace today.
Trend 1: Behemoths can innovate too
Today we are witnessing seismic shifts in the way corporates approach innovation. It is no longer seen as a separate function served solely by a head office team, but instead as something ubiquitous that permeates the entire organization. The innovation teams of today are no longer merely shoppers for talent, seeking young companies to purchase. They have become time-travelers who keep their decision makers abreast of rapidly changing technology developments and market trends.
This is due, in part, to the decentralization of knowledge. It is now easier to gain access to expertise and resources through platforms such as Whitespace’s Fuse and the CognitionX platform, which match startups with corporates. This has improved the quality of deal flow for investors who now expect more from seed-stage companies. Correspondingly, for founders, it has enabled them to find their product market fit faster and more cost effectively.
Interestingly, we are seeing what would have been regarded as ‘traditional industries,’ like energy and manufacturing, becoming early adopters of next generation tech. Industry 4.0 is breathing new life into such institutions. Kx for example, is working with CGI to deliver a next-generation electricity information exchange for Fingrid.
Trend 2: London will always be ‘Tech City’ but funders will continue to cast a wider net
This year we have seen growing interest in startups based outside of London. Northern Ireland, for example, boasts a swarm of talent and new ventures are emerging from institutions such as the UK’s Centre for Secure Information Technologies (CSIT).
Further, London funders are no longer oblivious to the talent and IP originating from non-London universities. Many spend time in Oxford and Cambridge searching for PhDs to commercialize ideas. Bristol, for example, is known as a hotbed for quantum startups, and Kx portfolio company Kets is based there.
Where once these tech companies would have had to move into the London area for Series A and B funding, they are now able to secure it closer to home. Our partners BGF, for example, have set up offices across the country, and invest 74% of their fund in companies outside of London.
Trend 3: UK venture capitalists must match the speed of their US counterparts, or face competition from ICO’s as regulatory methods improve
With Satoshi Nakamoto’s white paper almost 10 years old, it seems that blockchain has finally found tangible use cases where it makes commercial sense to deploy a distributed ledger. Blockchain-inspired Factom, for example, is improving cloud storage security by providing document authentication and immutable audit capabilities. Another example is Cobalt DL, a Kx portfolio company launched in 2017 with major institutional foreign exchange participants, which uses distributed ledger technology to reduce risk and FX post-trade costs by up to 80%.
A number of well-known UK funds have finally announced that they are ready to invest in blockchain and crypto companies. It will be interesting to see how many blockchain startups are VC-backed versus those that choose to go down the initial coin offering (ICO) path. The ability to raise millions in minutes via ICO’s is enticing to some, as the UK VC process is thought to be time-consuming compared to U.S. VC’s – and no good founder wastes time raising. As the methods and ease of ICO regulations improves though, they will provide some healthy competition, forcing UK VC’s to act faster, to streamline their internal process, and complete ‘speedy rounds.’ We have already witnessed this, with many founders choosing to raise quick ‘micro-salami-rounds,’ smaller, shorter term investments, through platforms such as Seedrs or the UK’s Seedlegals.
Trend 4: It’s a race for personalization as data gaps continue to close
Algorithmic web-personalization has created an expectation among consumers that they deserve tailored experiences elsewhere, like in precision medicine, which is well on its way to becoming highly personalized. The consumerization of healthcare is transforming patient treatment, and cost-benefits are finally being achieved.
For example, the UK’s 2020 Personalized Health and Care Framework (being implemented from 2016 – 2021) is pushing institutions to use information technology to improve health outcomes, driving the adoption of new data-driven technologies. The UK’s 100,000 Genomes Project is driving the NHS to normalize the use of genomic data as part of routine care.
For startups, barriers to entry are lower than ever before, and open datasets, available on sites such as Kaggle, are providing founders with a means to validate a simple hypothesis for pre-seed rounds. This is improving investor confidence and increasing demand for partners with a medical background to lead funding efforts.
Kx portfolio company BrainWaveBank is closing the data gap with its low cost, high resolution brainwave scanning headset which analyzes EEG data using Kx technology for predicting those at risk of cognitive illnesses before onset. It is building the world’s first Big Data collection of brainwave activity data to target the cognitive health assessment market. The data empowers users with insights derived from their own brainwaves, offering tailored suggestions for improved health.
Trend 5: Convergence between space and other industries will increase
We are in the middle of a Space 4.0 investment boom, with SpaceX raising a $1 billion Series E round of funding. This is partly due to access to space intelligence becoming cheaper, with SmallSats providing earth observation and image data for services such as guiding disaster relief or tracking migration. Real-time weather data has a multitude of use cases for investors to consider, from e-commerce forecasting to measuring flood risk for insurers. Space companies also hold a wealth of knowledge applicable to other industries. For example, space companies are well versed in robotics, knowledge which is easily transferable to the automotive or agritech industry undergoing automation.
Trend 6: Diversity – It’s no longer a pipeline problem
In 2016, Atomico reported that more than 80% of funded startups were run by all-male teams. As a result, it has become increasingly common for investors to enact inclusion clauses in term sheets, requesting founders to review applicants from diverse backgrounds. The positive impact of diverse teams is well proven; different backgrounds offer new perspectives, provide varied insights, and as a result produce better outcomes.
According to Pitchbook, just 2.2% of US VCs went to startups founded solely by women in 2017, but we expect to continue to see funds setting diversity targets. In fact, the Kx Venturess latest partner, Gyana AI, which provides analytics to gain deeper knowledge from locational data, has a woman co-founder and CEO, Joyeeta Das who has been recognized as a game-changing innovation leader by the UK government.
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