When the news of COVID-19 first hit the global stage, it would have been impossible to predict that we were about to see the worst public health crisis of our generation — and that we would still be dealing with the ramifications almost a year on.
It would be an understatement to say that 2020 presented every industry with a new set of unprecedented challenges. As tech investors, we position ourselves at the forefront of emerging trends and changes in the market, but the current environment has forced us to question: how will the post-COVID world change appetite for (and consumption of) all products and services; what regulations and infrastructure will be required to enable businesses to continue operating in the post-COVID era; and critically, which shifts in consumer behaviour will become permanent fixtures in the new normal?
At Talis, we seek to find, fund and support the world’s most ambitious entrepreneurs. Talis invests in tech across a broad range of industries, but we deep dive into specific sectors when we believe the timing is right. So, for our next fund, we’re doubling down on the industries that we predict will see some of the most significant and permanent shifts in the coming years. We’re looking to fund the next generation of technology entrepreneurs that are maximising on the opportunities that the new world presents.
Thesis 1: Tech Infrastructure
Current portfolio includes: Darktrace, Onfido, Carta, Pricefx, Luminance, iwoca, Acin, Censornet, Clausematch
We invest in the infrastructure that enables the digitalisation of all industries. “Tech infrastructure has always been at the forefront of our investment strategy, but we’re doubling down on this area: companies in our portfolio that have enabled the global shift to remote working have done exceptionally well amidst the pandemic,” says Vasile Foca, managing partner and co-founder at Talis Capital.
An area of interest for this thesis is construction tech, in which we made our first investment, Construyo, earlier this year. The construction industry is worth $10 trillion globally, accounting for 13% of global GDP — with an amazing 7% of the world’s population serving the sector.
“To date, the industry has had very little incentive for self-disruption — unlike other industries that have gradually embraced change and digitisation to increase their productivity,’ explains Beatrice Aliprandi, Principal at Talis Capital. Poor time management, reliance on physical documentation, litigation costs and disperse locations are only some of the issues plaguing the industry.
But there’s several indicators that the sector is ripening for investment. “Hardware technologies are becoming increasingly more affordable and available — and COVID-19 is accelerating the move to digital,” says Beatrice. “As construction sites all around the world have either shut, reduced their operations or faced disrupted supply chains and restrictions, companies are having to quickly find solutions to return to productivity as early as possible and prepare for the regulations of the post-COVID world.
“We’re looking for founders who are creating a new atomic unit in construction, and disrupting the sector end to end, bridging the gap between information silos. We believe the first subsegment to be successful will be one most closely linked to ROI and productivity, and the one where AI has the clearest applicability in the short to medium term,” says Beatrice. You can read Beatrice’s deepdive into the construction sector’s journey to innovation here.
We’re also exploring opportunities in the regtech space.
We’ve been investing in the regtech space for a while — but the sector is growing at an unprecedented pace. Over $9bn of global VC funds were invested in regtech in the last five years — with $6.5 billion of that in the last two years. It’s predicted that global expenditure on the regtech sector will rise from c.$18 billion in 2018 to an estimated $115.9 billion by 2023.
“We’re about to see a global regulatory earthquake,” explains Vasile. “With the introduction of significant new regulations — such as MiFD II, GDPR, PSD2 and 4MLD — we’re seeing increasingly more companies emerge in the space to allow a smooth transition for these laws to come into practice. There will be an even greater opportunity for innovation thanks to the upcoming regulation for the tech sector in EU. The Digital Services Act, which is expected to come into play by the close of this year, is the first big overhaul of the EU’s approach to regulating the internet for two decades.”
The sector has boomed amid COVID-19 as a result of the rising demand for regulatory technology that can be integrated remotely. “Distributed teams are on the rise and companies need specific software to reduce the complexity of cross border risk management, global payrolls and international compliance. We see the biggest opportunities for solutions that focus on managing global teams, as well as software to manage new kinds of digital risks and regulation,” says Vasile.
“On top of that, we’re looking closely at companies addressing the ever-increasing issue of AI responsibility and ethics,” adds Matthew De Jesus, Principal at Talis Capital. “The integration of AI across almost all industries is causing regulatory chaos: from a regulation standpoint, there’s an imperative need to constantly assess whether AI is being used responsibly, and to test all areas of fairness and bias in models and applications in a way that it doesn’t affect their development. With regulators moving towards a more proactive approach to responsible AI, and with industry leaders taking first mover responsibilities, there’s real opportunities here for companies that can provide ethical frameworks to suppliers and regulators to ease this transition. It’s a nascent industry, but nonetheless one that I think we’ll really see emerge in the next few years.”
Thesis 2: Tech That Changes How We Live
Current portfolio includes: Ynsect, Learning People, Plum Guide, Garten, DayDayCook, IMMO
“As we move towards a more remote world, we’re looking into advances in technology that are not only enabling a longer life but a healthier, more fulfilled existence,” says Matus Maar, managing partner and co-founder at Talis Capital.
Within this thesis, we’re looking closely at digital health. “COVID-19 has shone a light on the inefficiencies in healthcare systems globally. The pandemic has proved to be a testing ground for the maturity of digital health technologies — whether that’s frontline care, remote monitoring or operational efficiencies,” says Beatrice. “The pandemic has demonstrated the potential of digital health technologies to protect patients, clinicians and the community from exposure, but also by simply allowing healthcare businesses to continue running efficiently. Countries all over the world are moving towards digital-first health strategies, and the appetite for innovation that can enable this shift has grown exponentially.
“We’re also thinking about the healthcare system more broadly. Given that the healthcare sector has a long history of systematically failing to serve women, one area I find most fascinating is femtech, a space predicted to be worth $50bn by 2025,” says Beatrice. “With lots of new players emerging in the industry, I see two key areas of opportunities for young businesses. The first is a new radically different model of healthcare that is built around the female experience: we want to fund a healthcare revolution and see an entirely new model tailored to women from the outset. The second is in communities, where women can find support from other women going through similar experiences.” You can read Beatrice’s research on the femtech space here, as well as some key resources used for the research.
Edtech is also a sector we’re looking more closely at. While edtech is certainly not a new market, it’s growing: in 2016, it was valued at $56bn, reaching $175bn in 2020. The education industry has historically seen very little digitisation, with just 2% of global education spend being focused on digital. “With COVID-19 seeing 90% of students globally unable to attend classes in person, and teachers switching to holding classes via Zoom, WhatsApp and Microsoft Teams, the sector can no longer hide from the urgent need to digitise and embrace technology. Now more than ever, it’s evident that if deployed properly, technology will be the key enabler to offset the potential widening of inequality in education caused by COVID-19,” says Cecilia Manduca, Analyst at Talis Capital.
The sector is vast, and each stage of education comes with its own set of issues — but with crisis comes opportunity. “Given the global shift to education becoming a life-long journey, we see space for more companies in the sector that are expanding the total addressable market to people of all ages,” explains Tom Williams, Partner at Talis Capital. “We also want to see companies rethinking traditional education, including new online-only schools that cater for remote students. With students increasingly relying on digital tools for education, we want to see more companies that are capitalising on the switch to mobile, creating content to match different mediums.” You can read Cecilia and Tom’s research into the edtech space here.
We’re also increasingly exploring opportunities in the sustainability space. Humanity is at a critical moment to address the most pressing environmental issues that our planet faces today. With more attention on the urgency of these issues, startups in this space are gaining traction: venture capital investment into ‘climate tech’’ grew at almost five times the rate of the overall global VC market between 2013 and 2019.
“Despite the pandemic, sustainability is at the forefront of everyone’s minds. Nowadays we’re seeing more companies demanding services that will help them offset emissions, and many organisations are looking to integrate sustainability into their practices. At the same time, the European Commision’s new Sustainable Finance Disclosure Regulation comes into play in March 2021, meaning that financial advisers will be required to integrate sustainable risk considerations into their diligence processes.
“In the past, it’s been challenging to find commercially strong businesses that also have clear sustainability, but that is changing. There’s great demand from investors, the public, the regulators, businesses and venture funds to find new solutions. Yes, we are living through COVID-19, but climate change isn’t going to disappear without the funding for innovative sustainability — ultimately, it’s the most existential threat that humanity faces,” explains Matus.
Thesis 3: The New Generation
Current portfolio includes: Laced, Zyper, Bleach London, Narrativ, Pirate.com, Kimai
“True digital natives born in a high-tech world have created a massive socio-economic and cultural shift: creating a new wave of expectations, shaping consumption of all goods, services and media,” says Matus. Gen Z have a direct spending power of up to $144bn; the spending power of millennials in 2020 is $1.4trillion.
“True digital natives born in a high-tech world have created a massive socio-economic and cultural shift: creating a new wave of expectations, shaping consumption of all goods, services and media,” says Matus.
Within this thesis, we’re looking at companies enabling deep interactive entertainment. Deep interactive entertainment will accelerate the videogame and entertainment industries: they will become universal, and central to people’s lives. “We are in the middle of an explosion of new technologies (both hardware and software): an explosion bigger than anything since the birth of the Internet 30 years ago,” says Kirill Tasilov, Principal at Talis Capital. “Every generation of new technology opens up a massive new growth path. We believe there is a massive underrecognised secular shift from linear entertainment of 20th century to interactive entertainment in the next 10 years. Covid is making this shift abundantly clear,” says Kirill. In the next few years, everything about the gaming and entertainment space is going to change — from how we build and operate it, to how we access and interact with it.
With each new generation, the boundaries between the digital and physical will continue to dissolve. “We’re seeing a lot of innovation in use patterns and play patterns. It’s not unlikely that the next big social network will emerge as a video game,” Kirill says. “We’re also spending a lot of time looking at video: video has all the right parameters to be the next new platform, but the underlying infrastructure isn’t designed to support the real time interactivity at scale. We’re also actively looking for interesting video applications that can be verticalised.”
At Talis, we define the carbon industry as a multi-faceted, multi-stakeholder sector that aims to decarbonise the global economy, while creating a new way of life that doesn’t deploy our planet's resources.
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