Hottest tech subsectors in growth and Private Equity

Dear fellow members,

As I have already explained in another thread, I am actively considering a move from my mega fund with a strong sector focus to a growth equity or more traditional private equity fund. After so many years in M&A / PE, I have become quite knowledgeable about Consumer & Retail, e-Commerce and Real Estate.

The more I look at job opportunities, the more I realize that most funds now invest in Tech companies in some shape or form. As much as I like the space, I feel I am not knowledgeable enough to impress other investment professionals - something that becomes really critical when you reach my level of seniority (Senior Associate / Principal).

So I can prep myself in the most efficient manner possible, could fellow members with a TMT background tell what are the hottest tech subsectors right now? I can think of blockchain and VR/AI, but these are more on the VC side for now. Any help and potential reading suggestions would be much appreciated.

Thanks in advance!

Camondo

 

I think you've missed my initial point. E-Commerce is the main growth driver in the Consumer, Retail & Leisure space, hence is an extremely important trend. All the players that have dismissed the shift towards online are now losing ground and often paying fortunes to catch up.

Re valuation, margins & al. I agree with you. The first mover advantage was given to early adopters (e.g. Amazon, Flipkart, etc.) who could then grow their market share while getting rid of their brick-and-mortar competitors.

 

anything infrastructure related.... you have with a cloud (amongst virtualisation, data etc....) a mega trend that will affect and disrupt the current IT/data centre set up for years. The infrastructure (back-end) layer is very interesting but not buyout materials (VC / growth).

On the more traditional side (growth / buyout) I would stick with enterprise infrastructure software and cyber.

I would stay away from ecommerce - wouldn't know why specialisation helps??

 
Best Response

Some topics for research (in no particular order):

1.) Big Data Analytics, HUGE! Gaining ascertainable and executable business objectives from data is all there is and ever will be. It touches every sector known to man kind, even it's own!

2.) Despite all odds crypto currency. Might be a good time to learn what that whole Bitcoin thing is all about.

3.) Enterprise technology has always been of interest, there are a few YUGE players in the game and they are gobbling up smaller companies in the valley like the Cookie Monster eats his cookies.

4.) Wet your whistle with anything remotely associated with "Cloud Computing;" Oracle the largest enterprise software company in the world just shifted it's ENTIRE business model to sell cloud based software. The battle ship has begun to turn. Monumental movement my friend! On-premise enterprise software is a thing of the past.

5.) Enterprise Security; Check the wall street journal any given month for the next big enterprise data breach, this is a big one!

6.) Healthcare IT; HC is bloated and will continue supporting any innovations that will make it's tangled mess more organized.

7.) eCommerce; When is the last time you bought anything from the store?

"A man can convince anyone he's somebody else, but never himself."
 

Quick couple of thoughts. Can post more thorough list later/another day. Have a TMT M&A banking background but no undergrad CS/Engines background. Big drivers of future growth and significant disruption in my opinion are:

  • Semi-conductors, chip hardware. There's been a lot of consolidation recently which has been talked about a lot, but there are horizon developments that will drastically change what's possible and affect every device segment, again across the corporate, public sector, and consumer spaces. Read something super interesting about a breakthrough Google had with Quantum computing. That stuff is nuts, and if it can become more accurate, reliable and stable, it will change everything.

    • In the Telecom space, there are some really exciting possibilities with 5G and beyond. Saw something about a terahertz transmitter which would be exponentially faster than anything currently running. As Data streams continue to get bigger and bigger and more shit is out there sending signals, transmission speeds will continue to become more and more important.

    • AI will continue to be a big disruptor across sectors and in the medium term, there are some really exciting next-gen projects that have the potential to really disrupt the corporate tech and labor market but also really change the consumer tech landscape a lot. This is rote and covered all the time, but the applications really are endless here. Some really cool stuff being done by early-stage small companies too, and the big dogs will continue to be acquisitive and are bidding up the prices of assets so opportunities for big returns are ridiculous.

    • Big Data. Can be connected to AI but often from an asset perspective very distinct. This one has been explored a lot so won't beat a dead horse, but lot of super interesting start-up/young tech companies that are doing amazing things. Worked on a sell-side M&A deal this year with a young company that went for a crazy premium because a tech giant wanted to leverage them for data analysis.

People make a big deal about FinTech, but realistically, FinTech is limited by the ridiculous scope of gov't financial regulation, the capital requirements of most lucrative financial actitivies, etc. FinTech is really just AI and Big-Data applied to the financial sector, but in terms of sectors ripe for tech disruption, banking isn't that vulnerable. The big tech companies can't afford to deeply engage with banking activities because they'll become regulated as financial institutions. WHen they're facing anti-trust, regulatory scrutiny already, this is a ridiculous risk. Other than the giants, nobody else will have the scale to compete with existing institutions who will slowly adopt AI/Big-Data fintech, but at their own pace.

 

I'll caveat my post by saying I have a vested interest in the growth of the information security/cybersecurity space.

That being said, I think ecommerce might actually contract a bit as brands try to create "experiences" at their brick and mortar locations. Brands are pushing back against the megacorps (Amazon, alibaba, etc.) by creating incentives to go to physical stores and spend time connecting with a brand and thinking of them as more than just a means to an end. It's the natural extension of loyalty programs.

Also, security is exploding. Every company needs to maintain trust between it and its customers. Security is the backbone of that relationship and C Suites and boards are finally wising up to that. That spotlight is just one factor driving tons of M&A and VC activity. I don't think you can go wrong making a move to the security space right now.

 

Interesting reading.

I would really recommend to differentiate within the "stack". If people say cloud is a driver that can mean any enterprise software is now rental and cloud delivered (good trades - see vista, Thoma Bravo etc.) but also means that datacentres / injection / infrastructure layer will be disrupted...

Same with ecommerce - are we talking front end software / business models or the actual infrastructure behind it? Same we could say for bitcoin and Big Data.... Do we talk about data driven business models that are now enabled? Are we talking about the technology enabling big data (spark, Hadoop, flink, kafka, you name it) or even the new gen of implementation houses? All the same headline.....

Same headline - different investment thesis. Some is real technology investments some are not although all investments are in the "tech" space.

 

I liked this part of it....A lot of applications are trying to integrate some form of social media, but the problem is that it isn't integrated (only on the single application) and is certainly not enterprise-wide.

Mind you to do all enterprise at all levels may not be also suitable from specifications point of view.. Think about it... I will lump summing them together like facebook which isn´t really a good thing in the long run....

 

Internet - social media, social gaming, flash sales, lead-gen platforms or mobile apps You see a lot of early stage investments in these areas.

Software - SaaS, Supply chain software, enterprise software, etc. A lot consolidation by bigger companies in this space.

I assume this is for a VC / Growth Equity interview. Once you look through stuff like comScore, Venture Source, Techcrucnch, paidcontent.org you will get a much better sense of what you want to focus on during the interview.

 

Not for an interview. I'm putting together a strategic piece internally and just putting together thoughts on interesting technology focus areas (looking to build out the group and making arguments for internet and SaaS-focused senior bankers).

 

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