This year has gotten off to a strong start, setting up 2021 for outperformance in both public and private markets. We expect the venture investments to rapidly accelerate, with a proliferation of new models, especially in areas such as digital health, infrastructure, and broader digital transformation trends. We discussed these trends in a recent podcast with our friends at Proof.vc.
Our positive outlook is based on the following assumptions and observations:
First, we assume that by around September we will have vaccinated over 50% of the adult population, and by November we are likely to have reached herd immunity levels. This will create a momentum in reopening that we can see as early as March or April.
We also believe that in 2021 the U.S. economy can grow faster than the current consensus of 4.3% expected, propelled by pent up spending (savings levels have increased during the pandemic) and fiscal and infrastructure spending. Overall, the pace of economic spending and stimulus aid initiated by the Biden administration point to a very active year.
On the public markets, we expect a record number of IPOs and exits this year, including continued “SPAC-mania”. We realize that by many measures we may be experiencing a bubble already, but we just don’t see a set-up to burst such a bubble in 2021. In fact, conversely, we see a pattern of development that will increase investment activity and raise the valuations further. This trend will further fuel the growth of venture-backed companies and higher valuations.
As such, this set up will continue to inflate assets until possible reversion to mean in 2022. But 2021 will be the year to get funded. We will expect consolidation of COVID-challenged areas (such as real-estate, fitness gyms, retail) by the strongest players in each field, and continued transition to digital models.
Finally, we expect a growth in start-ups that are entering areas previously avoided due to competitive fears from the mega-cap tech companies (FB, GOOGL, MSFT). These meg-caps will be under tight scrutiny and will likely limit their M&A and product/sector expansions.