On My Radar: Some Personal Investment Themes for 2024
Which established business models will AI shatter? Is American nostalgia the tech industry's next big thing? Which emerging cloud infrastructure startups will mirror Snowflake's success? And more...
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In the face of today's dynamic market, this year I'm excited to explore four distinct themes brimming with potential for explosive growth in 2024 and beyond.
For context, I’m an investor at Expanding Capital, a growth-stage VC firm that backed Stripe, Canva, Coinbase, Alto Pharmacy, Sure, Postscript and more. While our approach remains generalist, identifying key thematic trends allows me to navigate the evolving market landscape with informed direction.
First, I’m continuing to explore Generative AI. For almost a decade, my interest in conversational AI has motivated me to explore its potential in boosting productivity and solving business challenges. (I co-founded Humin, a conversational AI app, acquired by Tinder. I also led technology partnerships at Snaps, a generative AI platform for customer service that got acquired by Quiq). I’ve been writing about conversational AI since 2016, and written extensively about The Building Blocks of Generative AI and shared my thoughts on what might be investable at the growth stage. This year, I’m exploring Generative AI trends around vertical AI, agents, GPU reliance, and tools that focus on observability/safety.
A second theme I’m excited to explore is what I call Future Proofing, to focus on areas like climate, energy independence, dual-use technologies, space and defense/national security for the US and our allies. In an age of deglobalization, “rearming the arsenal of democracy” is in.
A third investable theme I’m exploring this year is Lifespan, Longevity, and Healthspan. From exploring new models for, basic yet proactive healthcare to obesity to anti-aging companies, I believe in extending lifespans and enhancing well-being might present exciting investment possibilities.
Finally, this year, I’m excited to learn more about Cloud Infrastructure. Think of your online life - it runs on cloud infrastructure. Emails, streaming, apps – all powered by vast networks of servers and databases. According to Gartner's Cloud Services Forecast, most of the global B2B cloud expenditure is allocated towards cloud infrastructure. In comparison to application software, cloud infrastructure software has a larger addressable market that is growing faster. A simple question I’d like to answer is which startup can become the next Snowflake?
I don’t have all the answers or companies yet but sharing some insights and open-sourcing my questions below:
Generative AI - Beyond ChatGPT
In 2023, Generative AI witnessed an unprecedented influx of capital, with startups in this sector securing approximately $27 billion in investments, as per PitchBook. Notably, Amazon, Microsoft, and Google were major contributors, accounting for around $18 billion of the total funding. I’ve written about the landscape and Generative AI infrastructure, and this year, my attention is focused on more specific niches within Generative AI.
One area under my microscope is Vertical AI. Unlike its horizontal counterpart, Vertical AI narrows its focus to particular industries or tasks, embedding deep, domain-specific insights for more precise and relevant outcomes. I expect to see more companies get funded in sectors like law, finance, healthcare. The legal/accounting domain offers a good example. One of our investments is Laurel.ai, a pioneer in leveraging LLMs for automating compliant narrative generation in legal and accounting contexts.
Another frontier is the development of alternatives to traditional GPU reliance. The quest for high-end GPUs, such as H100s, has become a significant hurdle for developers aiming to harness the latest language and vision models. This gap between demand and supply has sparked innovation among companies like Together.ai which is a decentralized cloud services provider, or CentML, which makes models run more efficiently. There are also novel players like WebAI whose models reside in the devices consumers use, or Groq, which invented Language Processing Unit (LPU) to deliver the fastest speeds for AI applications. All of these companies are striving to democratize AI development by obviating the need for expensive hardware.
As a non-engineer, the empowerment of non-engineers through Generative AI is still an area I continue to be excited about. Tools that translate natural language into code are unlocking new realms of creativity and efficiency, enabling users without technical backgrounds to engage in software development, analytics, and complex system management. Our recent investment in Canva exemplifies this trend, where users can simply write text to create beautiful designs and presentations. Some other companies I’m tracking include Flutterflow, Builder.io, Builder.AI. Even seasoned engineers stand to gain from these advancements in natural language, as evidenced by a company like LastMile AI's efforts to streamline the integration of generative AI models into applications.
The concept of AI agents capable of interpreting and executing on higher-level intents represents yet another exciting development. These agents promise to transform user instructions into actionable tasks, thereby enhancing the utility and applicability of generative AI systems. We might be early on the Hype Cycle here but the potential for significant advancements is so exciting. Some companies building agents include Mindy.com, Bret Taylor's new venture Sierra, and Xembly. Lutra.ai is a no-code/low code tool that generates workflows by transforming English instructions into code, orchestrating apps to efficiently complete tasks for you like scheduling or or enriching spreadsheets through scraping web data.
On the business model front, Generative AI can disrupt many businesses, and certainly disrupt traditional pricing strategies across various sectors. An illustrative case is Intercom's shift from a seat license model to a cost-per-resolution model (just 99 cents), powered by AI. This evolution points to a broader trend towards value-based pricing models that prioritize outcomes over input measures. I’m looking for companies that are innovating here.
Lastly, here’s a few other fun areas I’m watching. The duel between open and closed-source language models is set to intensify. I’m also looking forward to Apple entering the LLM space. The emergence of new search engines like Perplexity AI, could shake up things with Google? Finally, Apple’s App Store created a platform for new companies raises intriguing questions about the potential of the GPT App Store to replicate such success in the Generative AI ecosystem; will there be a new unicorn born app here?
Future Proofing America
In 2023, I first heard the term "de-globalization", which is the shift toward a more localized, self-sufficient world. This movement signifies a departure from the era of global interconnectivity but instead more local solutions and reinforced borders. This "de-globalization" phenomenon was first introduced to me by a friend and mentor, Alix Pasquet (I love his talks here)
This transition away from a globally integrated framework is fueled by a confluence of factors, including the aftermath of the 2008 financial crisis, environmental concerns, security issues, and the global response to COVID-19, impacting trade and financial flows worldwide. It has only been exacerbated by events like Russia invading Ukraine and Hamas’s savage terrorist attacks on Israel.
My exploration into "de-globalization" actually deepened through reading books like "The Fourth Turning Is Here" by William Strauss and Neil Howe, which navigates the cyclical nature of generational shifts and historical patterns, forecasting a period of upheaval poised to redefine the American societal fabric. Similarly, Peter Zeihan's "The End of the World is Just the Beginning" dissects the geopolitical and economic ramifications of current global trends, including “de-globalization”, presenting a vision of a world where longstanding alliances and economic norms are upended. Shoutout to Jon Kurland for starting our monthly book club where we read these back to back.
These books resonate with the shifts I've observed in the venture capital landscape, where the emphasis on themes like American Dynamism, Defense Fordism, and National Security/Defense landscapes highlights a sector ripe with opportunities for innovation and growth, especially after companies like SpaceX, Anduril, and Palantir have had meteoric risings.
This year, my focus gravitates toward what I call "Future Proofing" – a commitment to advancing climate resilience, energy autonomy, and dual-use/defense technologies essential for safeguarding national security.
As a firm, we’ve invested in Series B/C of OpenGov, which was just acquired by Cox for $1.8B and Astra Rockets, which IPO’d. This year, I’d like to go deeper.
There is certainly excitement around defense. In a recent Washington Post article, it says “After a decade of pushing a utopian vision of the future, tech’s most optimistic pitch is a return to America’s past. Connecting the world is out. Rearming the arsenal of democracy is in” I’m here for this.
I’m also interested in exploring more beyond “Gundo”, the new nickname for El Segundo where companies like Boeing, Northrop Grumman, ABL Space Systems, Lockheed Martin, Aerojet, and many new startups.
Initiatives like the Inflation Reduction Act, are going to propel investments in green technologies and energy independence.The Inflation Reduction Act is the largest piece of federal legislation ever to address climate change. According to the nonpartisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), it will invest $783 billion in provisions relating to energy security and climate change.I believe it will present lucrative avenues for venture capital in renewable energy, electric vehicles, and carbon capture initiatives.
For example, Tesla's growth has been significantly bolstered by government incentives for factory establishment, battery production, and development, alongside consumer tax credits and R&D support. Notably, the Gigafactory in Nevada received about $1.25 billion in tax incentives, enhancing Tesla's production capabilities, while federal and state EV tax credits have spurred demand for Tesla vehicles. Additionally, Tesla capitalized on R&D grants and loans, such as a $465 million loan from the U.S. Department of Energy, and profits from selling renewable energy credits, furthering its expansion in clean energy and transportation.
These incentives present opportunities to invest in climate technologies at reduced costs, making green tech startups more competitive and potentially profitable.
In focus are Renewable Energy, with the IRA allocating $400 billion to clean energy projects, EVs and Batteries, with significant investment flowing into this sector, and Carbon Capture, Utilization, and Storage (CCUS), boosted by a $6 billion program. Energy Storage and Clean Energy Technologies also offer investment opportunities, especially in scalable climate tech startups. Key companies I’m keeping my eye on include Carbon America in carbon capture, Ion Solar and Arcadia in renewable energy, and Redwood Materials and Ascend Elements in battery recycling (which we sadly had to pass on but am rooting for!)
Longevity, Lifespan, and Healthspan - The Ultimate Long Game
Six years ago, my dad was diagnosed with ALS, a disease that attacks the nerves controlling muscles, leading to a gradual loss of movement and, eventually, the ability to breathe. This personal experience has deeply influenced my interest in the broader themes of longevity, lifespan, and healthspan.
Unlike mere lifespan, which counts the years lived, healthspan focuses on the years lived in good health.
I've been reflecting on these concepts lately, also inspired by Dr. Peter Attia's book "Outlive." Attia advocates for not just aiming to live longer but to enhance the quality of life as we age. He suggests adopting the mindset of training for longevity, like preparing for a "centenarian decathlon," where the goal is to maintain the ability to perform basic physical tasks into 100 years of age.
My fiance is also a resident doctor at Lenox Hill Hospital. So many of her patients are obese, diabetic and have other maladies which can often lead to amputations. So often I hear from her the value of being healthy, on top of health, and the ability to stay mobile.
Our modern lifestyle, despite its comforts, brings challenges to maintaining health. Diseases like cancer, heart disease, and diabetes are prevalent, exacerbated by our environment's rapid change compared to our slow-evolving genetics. Furthermore, our physical activity, sleep habits, and even the impact of social media on our mental health require careful management.
This year, I'm committed to diving deeper into the investable areas of lifespan, longevity, and healthspan. My approach is informed by both personal experiences and a desire to find practical ways to live a healthier, fuller life.
Our firm's portfolio proudly includes investments in pioneering healthcare companies such as Clover Health, which offers highly affordable healthcare plans tailored for America’s seniors; Alto Pharmacy, a digital pharmacy emphasizing medication adherence; Imagen AI, recognized for its FDA-cleared AI Diagnostics-as-a-Service; and Q.Bio, a digital health platform designed to foresee and forestall chronic diseases through the integration of advanced imaging, comprehensive blood tests, and in-depth data analysis.
One area that I want to explore is primary and remote health, simply starting with the basics. The demand for health care that's both accessible and cost-effective is on the rise, fueled by an aging global population and an uptick in chronic conditions. Innovations in remote patient monitoring and primary health care are increasing, and there is a variety of technology built to enhance patient outcomes but also to minimize hospital readmissions while slashing health care costs. These advances might have appeal for investors while also poised to make a societal impact. For example, Harbor Health, which emerged in 2022 with a novel care model blended primary and specialty care services into a vertically integrated "pay-vider" model. Similarly, Forward Health has tech-forward clinics, sidelining traditional medical staffing in favor of technology-driven solutions, including body scanners and smart sensors in malls and office buildings. There are many ways to monitor health. Dr. Mark Hyman, along with my good friends Jonathan Swerdlin & Zack Werner, started Function Health, which offers a comprehensive suite of over 100 lab tests aimed at providing a thorough health assessment to enable proactive health management and disease prevention.
The surge in GLP-1 agonists like Ozempic and Wegovy marks a significant moment in health care innovation, addressing not just type 2 diabetes but also offering notable weight loss benefits. With The Economist forecasting the GLP-1 drug market to surpass $150B by 2031, matching the scale of the entire cancer drug market in 2021, the potential for growth is immense. This is particularly relevant as obesity affects 40% of the global population, with nearly half of adults expressing interest in effective weight management solutions.
Addressing obesity not only aligns with health priorities but also intersects with aesthetic considerations, spotlighting the burgeoning cosmetic dermatology sector. Projected to expand from $73B to $129B by 2028, the sector's growth reflects a broader acceptance of cosmetic treatments and an increased dedication to self-care. The botox market, illustrating this trend, was valued at $7.23 billion in 2022, with projections suggesting a climb to $12.1 billion by 2030. Amidst this growth, Ever/Body, a standout in the field, secured a Series C funding round, elevating its total funding to over $100M since its inception in September 2019, marking significant milestones in the evolution of cosmetic dermatology and its role in the broader wellness narrative.
For both obesity and aesthetics, I’m unsure if we’d invest in business models around novel key drugs like Ozempic or Botox, or if the market is large enough to invest in the infrastructure around them.
Beyond proactive care, obesity management, and aesthetics lies the frontier of anti-aging, a domain where recent advancements have spurred a surge in the development of treatments targeting aging as a fundamental cause of disease. Among the standout names in this space is Altos Labs, a startup that has quickly garnered attention and a substantial $3 billion in capital, notably from Amazon's Jeff Bezos. Another company I’m tracking is Modern Age, an aging-focused wellness platform. The platform offers digital tools and services, including telemedicine and in-person treatments, designed to support individuals in managing various aspects of health throughout the aging process. And on a smaller scale, Humanity has introduced an iPhone app aimed at decelerating the aging process by monitoring and analyzing data on movement, nutrition, mental health, and sleep, thereby offering personalized recommendations to help reduce one's biological age.
Finally, some out there concepts like brain interfaces like Neuralink. I’m unsure if this is investable at the growth stage but I love the promise of enabling people with ALS to walk.
Healthcare has had its issues as an investable category however. Bessemer published research and despite a challenging phase for the health tech market, with public performance waning and venture capital funding anticipated to drop from its $29 billion peak in 2021 to around $10 billion by 2023, it lower returns might have been part of a broader market cycle rather than indicative of the sector's long-term promise.
However, I believe now the onset of the pandemic has significantly fueled the growth of digital health technologies. A recent study conducted by the IQVIA Institute for Human Data Science highlights a substantial surge in digital health applications, revealing the launch of over 90,000 new health apps in 2020 alone. This explosion of innovation has provided consumers with an expansive selection of more than 350,000 health apps, marking a pivotal moment in the accessibility and diversity of digital health resources.
When speaking with my dad about this article, he said from a broader sense, I should focus on how we can unlock the secrets of health. Medicine is changing, we can sequence our genetic code, develop medicines faster than ever, and merge our brains with computers. I’m excited to explore healthspan more deeply.
Cloud Infrastructure - Giants and Challengers
The cloud's journey began in the 1960s with "timesharing," and today, it powers industries like finance, healthcare, and transportation, reaching a market size of $483 billion. For both private and public investors, cloud infrastructure's appeal is evident, with Gartner reporting it attracts the majority of global B2B cloud expenditure.
The market giants - AWS, Azure, and GCP - however face competition from other companies. However, navigating this landscape can be confusing, with acronyms like DBMS, ETL, ELT, OLAP, MDS, and NoSQL swirling around, understanding differentiation is difficult. As an example, Matt Turk’s MAD Landscape features what looks like thousands of companies. While financial metrics tell part of the story, technical understanding/GTM is crucial (and this is the area I’m going to spend time exploring. This might be a multi-year process. Better late than never)
My exploration is starting with asking questions:
Once a futuristic term, the concept of MDS (Modern Data Stack) is something that (I think) has turned into a meme amongst the developer community. MDS is a process that involves extracting, storing, and analyzing data from various sources. Data pipelines, like ETL/ELT, which is short for extract, transform, and load, are used to prepare data for analysis. There are well known solutions like DBT, Fivetran, and open-source options like Airbyte. I want to understand what MDS means today and explore the moniker, which might just mean consolidation of cloud infrastructure companies.
I’m also interested in databases, which act as digital filing cabinets, and how they store diverse data. There are over 300 different types of database companies, and many companies use multiple databases. So my key question arises: Which database players can compete with bundled offerings from large cloud providers? Which databases will benefit from AI? Which databases have a moat?
From a database, data gets transferred to data warehouses or data lakes. Snowflake, a cloud data warehouse, excels in the storage and processing of structured data. Databricks focuses on processing unstructured data, within what they coined as a data lake. These data lakes are integral for applications like machine learning and AI, enabling predictions, such as future customer behavior. Notably, Databricks has extended its offerings by introducing a data lake house, effectively merging the capabilities of data lakes and data warehouses. Both Snowflake and Databricks have expanded their product portfolios, diversifying into various aspects of cloud infrastructure. Here’s my key questions on the data warehouse category: What kinds of companies can compete in the data management arena? What characteristics might the next Snowflake-like company possess, and who are the prospective candidates in this evolving landscape?
Finally, even seemingly simple concepts get complex in cloud infrastructure. Data catalogs and monitoring/observability trends are gaining traction, offering solutions to navigate this intricate world. I’m also exploring the category of database abstraction, which is the process of simplifying the complexities of database operations and interactions through a simplified interface, allowing developers to work with databases in a more intuitive and less complex manner. Companies like Supabase and Apollo offer services and tools that abstract away the direct handling of database queries and connections, providing developers with easier, more efficient ways to access, manipulate, and manage data across various types of databases.