Insights

Long-Term Trends to Watch Out for in Silicon Valley
POSTED 12.12.18 M&A

Where is Silicon Valley headed in 2019… and beyond?

As with any forecast, you first have to look to the past and the present day to get a sense of what trends will continue, and what surprises we might find in the future.

I recently sat down with Bob Karr, founder and CEO of business-focused social network, Link SV, to get his thoughts on what he sees as the most important trends that will impact the Valley.

They run the gamut, from staffing to mergers and acquisitions.

If you run a startup, work in tech, or invest, this is a must read to get an idea of fundamental shifts that are changing the way you do business.

Acquisition Growth Strategy

As Bob notes, some people these days are building companies to pass down to their kids; the classic family business. Others are trying to create major companies that they hope will grow big enough to go public…a unicorn like Uber, in other words.

But, even though companies are poised to raise more than $75 billion in 2018 (compared to $52.2 billion in 2017) that’s far below pre-Great Recession and Dotcom era levels.

The vast majority of startups have something altogether different in mind than an IPO.

They are pursuing an acquisition strategy, building a solid business that catches the eye of Buyers who they can sell out to.

The founders sell and either move on to another venture, armed with fresh funds, or become part of the larger firm that can help them execute their dream, thanks to its enhanced resources.

This strategy is more common now than ever before. And it will be sustainable because there are a lot of potential Buyers out there.

Plenty of money, too. Record-setting levels of “dry powder,” as they say.

Another less tangible reason for the trend of increased acquisitions is status. There is no cachet in being a shareholder in Tesla. You have some shares in Tesla; big deal, you’re not alone. Everybody and their mother has a piece of Tesla.

But, if you invest early on in a startup that becomes the next Tesla or Airbnb or whatever… then you have something.

These are the incentives that keep investors buying companies. As with any investment, there is still risk. But in recent years the risks have decreased due to several factors, such as…

Strong, Effective Business Models

Startups these days are mature, especially in the tech space. The days of simply coming up with a “cool idea” and running with it before figuring out if it can actually make enough money to be worthwhile are over.

No more throwing everything against the wall to see what sticks.

Founders are taking a methodical approach to crafting an effective business model with sound financials and a workable growth strategy. That makes for a more sustainable venture and fewer bad investments out there overall.

Solid Leadership

The Silicon Valley stereotype of a founder is a tech genius who just doesn’t get the realities of business. Good at what they do, not so good at hiring, marketing, and putting growth strategies in place that are needed to create a profitable venture.

But savvy startups have realized that to grow, they need the real deal.

So, these days you find better, experienced people actually running companies day-to-day and providing long-term vision and direction.

Who’s on Your Team?

The way we work, hire, and collaborate has changed in every industry, and Silicon Valley is certainly on the forefront.

Outsourcing (of jobs, essential services, etc.) is more important than ever. This is on the operational side, as well as the hiring of outside service providers to handle vital functions of a business. It cuts costs and boosts efficiency.

This means that how employees engage with companies has also drastically changed.

There is certainly less loyalty. And work is much more project-based and contract oriented. That being said, people who seek a long-term arrangement with a company they enjoy working for, will deliver higher performance on projects in the hopes of extending their relationships, which ultimately benefits the companies.

The age of the traditional full-time, in-office job could be coming to an end.

Industries That Will Continue to Flourish – and What’s Next

Internet of Things. The cloud. IT security. Social media. Block chain.

There have been several trends that have been game-changers in the Valley in recent years. And they’ll be with us for years, even decades, to come. What once were novel, little-known concepts have now become integral to how we live and work.

So, look for growth in these industries, both when looking at individual companies and their potential and the number of companies getting in on the action that introduce the next iterations of this technology.

But that’s not all.

How these niches started and grew can guide you in looking at up-and-coming trends you can capitalize on early, before they’re fully baked and the mainstream has caught on.

What do these trends have in common?

They provide products or services that improve people’s lives and how they do business in a fundamental and long-lasting way. These are not fads.

Our always-on, totally interconnected digital world means IT security is a no-brainer. 

With the need to store and transfer large amounts of data a given for just about any company, the cloud was a vital need.

It’s hard to find anybody who could do without social networks in their business, not to mention personal life.

And while crypto-currencies are still on shaky ground… the underlying block-chain technology is just beginning to realize its full potential. This is one to watch, for sure.

There is an outlier.

Take cannabis. One can argue that legalization improves people’s lives. But it wasn’t quite a natural progression. It took legislative action that may have gone the other way. And it hasn’t been approved in all states where it has come up on the ballot. It’s still a very controversial issue, which makes it a less sure investment in the long term.

Take these factors into consideration when looking at the horizon for trends that will pay off.

Where to Go From Here

There are solid investments out there in the Valley in both existing and up-and-coming trends. And with so many startups adopting an acquisition strategy to guide their growth, it’s never been easier to invest.

As an added bonus, more companies have a refined approach to doing business, including cost-effective employment practices and mature, experienced leadership that makes an even more attractive investment.

While planning your moves in the coming year, be sure to download this free 2019 Silicon Valley Trends Cheat Sheet to keep what’s driving change in Silicon Valley top of mind.