Looking Forward: VC-backed technology areas to watch in 2018

With the 2017 data in the books (see our analysis of MoneyTree and useful stats from the Venture Monitor), SSTI continues our series (see part 1) highlighting trends to watch in 2018. In this installment, we review two technology areas poised for increased VC-backed investments —genetics technologies for healthcare and specialized artificial intelligence and machine learning — as well as spotlight other potential areas that might emerge as key technology areas for VC-backing.

While each year brings the potential for unknown emerging tech areas of investment, these industries are poised for growth due to several unique factors such as increased consumer demand, early successes from VC-backed startups in a similar technology area, and significant advances in the basic technologies that build the foundation for startups in those industries.

Genetics technologies for healthcare

Genetic technologies for healthcare hold great promise in their potential to treat patients based on their individual genetic information. Driven by significant investments from the federal government and nonprofit organizations, new technologies and startups are emerging that may help provide patients with better quality care at lower costs.

Why it matters: Biotech consistently ranks among the top industries for VC attraction; the significant pools of patient biotech-focused capital and strong potential for exits (due to large pharma companies’ acquisition activity) make this an attractive growth area for startups that advance beyond the initial rounds of funding. These companies also have the potential to make significant impacts on the quality of life for Americans and global citizens.

What is behind the trend: While there are still significant technology hurdles that need to be cleared for genetic technologies to be transformative, advances in research are starting to reduce the costs of genetic sequencing and moving the technology beyond the laboratory. An area of significant growth in genetics technology for the short-term is direct-to-consumer (DTC) genetic testing, according to the ECRI Institute's 2018 Top 10 Hospital C-suite Watch List. The report finds that the number of startups entering the sector significantly increased in 2017. These technologies allow individuals to take more of active role in their health.

Specialized artificial intelligence and machine learning

Driven by consumer, industry, and government demand, VC capitalist and other professional investment organizations are making significant investments in startups focused on the technologies related to specialized artificial intelligence and machine learning.

Why it matters: Building upon the increased availability of big data and the popularity of using analytics in business decision making, VCs and corporate VCs are increasingly becoming interested in startups related to specialized artificial intelligence and machine learning because those companies offer the potential to provide users with a customized experience and reduce the burdens to business. While many tech companies will look to create millions of STEM jobs across the globe to achieve the AI-focused strategies, lawmakers and policymakers will need to consider the impact that AI and machine learning will have on the future of work – some estimate that 50 percent of jobs will come under threat of AI. Federal governments and states will need to consider how to benefit from the increased support for these technologies, while developing workforce development strategies to mitigate the damages of the technologies on other workers.

What is behind the trend: In 2017, investments in AI and machine learning startups doubled to $12 billion with a focus on technologies that can improve consumers’ life. One recent example of the money flowing to these technology areas is Andrew Ng, the founder of Google Brain deep learning project and co-founder of online education firm Coursera, raising $175 million for a new artificial intelligence (AI) fund. The fund is highlighted by significant investments from many of Silicon Valley’s largest VC firms and Japan's SoftBank Group. AI also was one of the hottest trends at the 2018 International Consumer Electronics Show. AI and machine learning startups also play an important role in helping companies achieve successful market integration and a recent partnership between Tesla and Nvidia Corp highlight the M&A activity around AI and autonomous vehicles.

Other technologies that may emerge in 2018

• While genetics technologies for healthcare and specialized artificial intelligence and machine learning are the areas most poised to emerge as the big VC stories of 2018, there are several other technology areas that might emerge including:
• Blockchain startups that move beyond the hype of bitcoin and other cryptocurrencies, to influence innovation in other industries;
• Based upon the success of businesses like Dollar Shave Club, both corporate VCs and traditional VC are searching for the next potential unicorn digital-first startup in every consumer-product category.
• Due to a fast-growing, mostly untapped $60 billion industry, VCs are looking for startups that have potential to improve the lives of pets and their owners.
• With U.S. consumers becoming more comfortable with voice controlled technologies and increased demands for consumer protection, startups engaged in technologies related to voice recognition may receive significant capital infusions.