Silicon Valley's Favorite Startups to Invest in – ArabNet Beirut 2016

Alexis Baghdadi, Mar 03 2016

Startups, startups everywhere. Investors have their inboxes full with the seemingly endless litany of entrepreneurs looking for funding to launch or scale their startup.

There are different factors to consider before making any investment, but for Silicon Valley and global early stage investors, some services or sectors are currently more interesting than others. This is exactly what Marvin Liao, partner at 500Startups, set out to demonstrate at ArabNet Beirut 2016.

Promising Investment Opportunities:

1. Virtual reality (VR) and augmented reality (AR)

“VR and AR is the next engagement platform,” said Liao. He mentioned that 126 AR/VR startups raised $658 million in early stage investments in 2015.

2. Internet of Things (IoT)

IoT, or the Internet of Everything, as Liao calls it, is about connecting all objects, so the possibilities are huge. In 2015, IoT startups raised $1.9 billion globally.

3. FinTech

122 FinTech startups raised $3.5 billion in 2015 ($3 billion in the US only), with startups focused on payments accounting for the majority of this investment (40%).

4. Millennials-oriented startups

“Millennials now represent the biggest voice of the US population,” said Liao. The rest of the world and emerging markets are soon to follow.

Startups that depend on millennials primarily include: dating, shopping, content consumption, fitness, and content versus ownership (sharing economy) of cars, housing, transportation, and luxury goods.

5. Technology in education

Starting with VR and AR to complement the learning experience, going up to every aspect of school life (administration, external and internal communication, publishing, etc.) technology is becoming the new norm in education.

6. Messaging is eating the world

Messaging is about more than just P2P communication, said Liao. He listed different examples of messaging applications, including finance, gaming, customer service, shopping, transportation, and enterprise internal communication, among others.

7. Copying from China

“To make it in the industry, startups have to start global,” said Liao. One way for startups in emerging markets to make the shift from local to global is to look at China. He explained that Chinese startups have to develop products and services for billions of users because of the huge size of the local market, which naturally extends to Southeast Asia. Startups in the MENA and other parts of the world could learn valuable lessons

8. The rise of cyber security

With the proliferation of mobile applications – particularly messaging, Liao said it is only natural that digital entrepreneurs will need to address security concerns of users. He cited JP Morgan as an example, explaining how even though the corporation had spent $250 million on security, its accounts were still hacked recently. He added that in 2015, total venture capital funding for cyber security reached $3.3 billion, and this figure will only increase with time.

DON’T Invest in

When it comes to funding early stage startups, Liao mentioned the most prominent “no-nos” that investors should avoid.

1. Social networks or platforms:

Suffice to say that a platform for the sake of a platform is not really a product. Unless its purpose is really-business oriented, it is basically a smaller, more specialized version of the existing social network giants, and therefore is nowhere near getting the same traction and attracting advertisers.

2. AdTech:

This is a massively crowded space, mostly without true technology differentiation. “Don’t bother with that,” said Liao.

3. E-commerce:

Once more, the market is dominated by giants like Alibaba, Amazon, Rakuten, Rocket Internet, etc. Localized smaller players may become big in their home market, but they are doomed to stay there, and they will rapidly reach their maximum growth.

4. Delivery and transportation:

“Get ready to compete with Uber,” warned Liao, adding that service delivery as a platform is just around the corner.

5. Gaming:

Before they acquire sufficient users, small studios will need to raise substantial capital and drain investors’ resources.

6. Consumer messaging:

Whatsapp, WeChat, Facebook. Basically, if it is consumer-centric it is at the mercy of consumers, and can’t introduce dramatic changes or monetization schemes without the risk of losing or alienating its consumer base.

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