Looking ahead to trends on the horizon with Luke Smith, Investment Partner.
Luke leads our Ventures Investment Team. Before joining Forward, he held investment and consultant positions at REV Venture Partners and Oliver Wyman. Here, he is responsible for our investment strategy, advising our portfolio companies and keeping ahead of market trends.
Technology is moving fast. Where do you see the biggest opportunities in 2023?
We remain very excited by the applied AI (artificial intelligence) companies we are seeing. Back in 2017, when we added applied AI as a focus area, we expected to see this technology being widely adopted across industries and we’re definitely seeing that now, which gives rise to exciting opportunities from the new applications of this technology. This year, I expect to see growth in some emerging areas of AI outlined below:
We’re seeing good traction in the "verticalised" AI-powered SaaS software, particularly in sectors that have historically been underserved by technology, such as healthcare, hospitality and manufacturing. These vertical solutions are hyper-targeted towards one specific industry and replace a range of sector-agnostic tools for a customer. Two of our portfolio companies, Dines and Sonrai, both investments made in 2022, are great examples of the promise that this approach can hold.
- Dines offers a one-stop-shop for hospitality businesses to manage their entire operations end-to-end, replacing a web of costly, often poorly integrated legacy software solutions. Their product improves operational efficiency, reduces costs and offers a new level of insights through data and analytics that would have been previously unattainable when using multiple software solutions.
- Sonrai, provides an AI-powered discovery platform to speed up biomarker development and is another example of where AI is being used to solve a very specific problem for a specific industry.
We’re also seeing exciting progress within federated learning, which allows artificial intelligence and machine learning to be deployed on edge devices, such as sensors, machines or vehicles, rather than streaming data to the cloud where it is analysed. This makes these solutions amenable to a range of sectors such as healthcare, manufacturing and Internet of Things (IoT), where cloud processing isn’t an option, whether due to data privacy concerns or poor connectivity.
This AI technology creates new content such as copy, images and audio that will also continue to attract attention. We’re already seeing success with this technology within many startups within the Forward portfolio, most recently with Robin AI, which uses AI and generative AI to improve contracts through software, machine learning and a team of world-class legal professionals and Fy! which allows consumers to create unique wall art with generative AI. Although in its early stages, I believe that we’ll start seeing more innovative applications of generative AI and the increasingly popular language model, GPT-3 to enhance existing vertically focussed AI businesses. We see Generative AI as part of our applied AI focus and it’s something we’re watching closely as exciting new opportunities emerge in the space.
Which emerging trends are you excited about?
Further out, we’re also paying attention to a series of trends on the horizon. At Forward, we favour near-to-market, applied technology, particularly when it is applied to markets that we know well. When we think about technology trends at Forward (and ultimately the areas in which we would like to invest over the longer term), we use a modification of the McKinsey Three Horizons growth model.
Horizon 1- now:
This represents the sectors that are exciting investment opportunities now - applied AI, marketplaces and Web3. These are the spaces where we are currently investing.
Horizon 2- over the coming years:
This covers the emerging spaces where we expect to find exciting opportunities in the next few years. We’re monitoring exciting developments in a number of areas but particularly:
- Next-generation bio - which sees software and AI improve healthcare and biotechnology through innovations such as synthetic biology, personalised medicine and AI-driven drug discovery.
- Cleantech - technologies that reduce negative environmental impacts.
We regularly evaluate sectors in horizon 2, so we can be ready to invest when the technology is sufficiently mature. It’s also important to understand the skills and networks needed to find the right founders operating in these spaces, so we can take advantage of the opportunities when they emerge.
It’s important that Forward is close to these emerging trends, and we do so by investing in companies making progress in these areas, where they align with our existing focus areas. For example, Sonrai, an applied AI investment, fits well within the next-generation bio trend, which helps to build our understanding and network in this exciting new space.
Horizon 3- 3 years +.
This covers the areas that are further from maturity, but where we expect investable opportunities for Forward in the next 3+ years such as:
- Quantum computing
- More generalisable AI
- Emerging energy technologies.
These are currently the focus of deep tech funds but we periodically evaluate them to identify when we expect the technology to achieve enough maturity for Forward to invest so we know when to start focusing more closely on them.
What will 2023 look like for the investment team at Forward?
We enter 2023 with a strong and focused investment team. Esha Vatsa joined us last year as a Senior Investor, bringing with her a wealth of experience across many sectors including Property, FinTech and LegalTech. Megha Prakash, had an excellent first full year at Forward, closing her first deal with BaseLime and leading on a number of other promising deals, including Dines.
In 2022, we crafted our Assessment Frameworks for Founders and GTM (go-to-market). This new process enabled us to build increased rigour around how we evaluate opportunities by providing frameworks to understand the key success factors for early-stage companies. For example, to identify strong early-stage founders, we use the CIDL framework, focusing on the four key drivers of success: Competence, Insight, Drive and Leadership. A standout founder combines these four attributes. Displaying competence to get things done to a very high standard, with some kind of unique or hard-to-build insight into the market and pain point they are addressing. To turn that idea into a viable business, a founder needs massive drive to keep going through the inevitable tough times and the leadership to build and motivate an exceptional team.
In our last Annual Report, we detailed how our investment team carried out an extensive strategy review to explore what we think the next big tech trend would be, which resulted in us pursuing new exciting opportunities within the applied Web3 space. Throughout 2022 and now into 2023, we will continue to identify interesting trends further out so that we can position ourselves to take advantage of them quickly, taking an even longer-term view of our investment strategy.
From an investment perspective, we hope to see more Series A and B follow-on opportunities, as later-stage funds are tempted to the market by startups who have been able to stay lean and still grow, despite the turbulence they faced in 2022.
What are your best moments from the portfolio this year?
- Gravity Sketch raising Series A from top-tier funds like Accel and Google Ventures. This investment positions the business to lead in a fast-growing space.
- Zopa achieving profitability, after they received their banking license in 2022. This marks an exciting new phase for the company as they show that they can continue to grow profitably.
- Up Learn achieving profitability while accelerating YoY revenue growth
- OutThink closing round of investment from Albion and others. We’ve been part of the journey with OutThink since the pre-seed round and it’s great to see Flavius’ hard work and hustle pay off with a round of investment from a strong fund like Albion that will let the business invest in growth
- Sonrai Analytics agreeing a deal with IV Bioholdings, a liquid biopsy company, to accelerate early detection of disease through clinical AI (here)
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