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January 10, 2021

The Nostradamus List: 2021

Ten predictions for the new year.

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Once again, Nostradamus has it in for us.

The sixteenth-century French soothsayer, renowned for his cryptic if intermittently provocative predictions, was never afraid of taking his work, Les Prophéties, to a rather dark place. Over the years, willing expositors have found evidence that Nostradamus foresaw the French Revolution, the rise of Hitler, and the attacks of 9/11, all enunciated in his foggy quatrains.

Even with that macabre track-record in mind, it seems Nostradamus outdid himself when penning predictions for 2021. Per the (hilariously generous) interpretations of some astrologists — parroted by several mainstream news outlets — the bewhiskered oracle foresaw twelve months of famine, solar storms, and even a zombie uprising perpetrated by those "half−dead to give a start."

My personal favorite is Nostradamus's supposed claim that "American soldiers will have brain chip implants." That very specific, very modern augury is derived from the following quatrain:

The newly made one will lead the army,
Almost cut off up to near the bank:
Help from the Milanais elite straining,
The Duke deprived of his eyes in Milan in an iron cage.

Hmmm.

I hope that my predictions for the year seem considerably less cryptic, though perhaps only slightly more plausible. In researching this piece, I decided to set myself a few unofficial ground rules:

  1. No predictions about whether people will or won't return to offices
  2. No discussion of a "flight to the suburbs" or the "unbundling of San Francisco"
  3. Invoke "Zoom" in one and only one prediction
  4. Increase the likelihood of looking dumb  

The last one might sound a little strange. But if there's one regret I have in reading last year's prognostications, it's that I played it a bit too safe. To increase the likelihood of looking foolish this time, I've tried to make my predictions as specific as possible, as well as thinking more critically about potential tail risks.

In keeping with 2020's format and as a nod to the All-Seeing Beard himself, predictions are accompanied by a homespun verse.

Let's get to it.

Six-figure bitcoin

The tower of blocks skyward grows,
A jeweled and gilded beacon that softly glows.
Empires add novel coins to their coffers rich,
Six figures reached, split by comma's stitch.

This is the point at which I must say: this is not investment advice. Anyone that's observed bitcoin over the past few years will know that even cryptocurrencies occasionally obey the laws of gravity. Startling tumbles often follow head-swimming run-ups. In late 2017, bitcoin's price neared $20K; a year later, it stood at less than $3.5K.

But there's reason to heed that dangerous phrase: this time is different. For one thing, the line of argumentation has changed. During the last bull-run, skeptics dismissed bitcoin's very viability, considering it unnecessary, overpriced, likely to fade into obscurity. This time around, the conversation is very different, with an increasing proportion of money managers and economists accepting the asset is here to stay, in some capacity.

That change in mood has manifested with early signs of corporate adoption. MicroStrategy, a business intelligence platform that trades on the Nasdaq, made waves when it invested $425 million of its balance sheet in bitcoin, with CEO Michael Saylor explaining, "I want something that I could put $425 million into for 100 years." The company has doubled-down since then, investing a cumulative $1.125 billion as of December.

Given their profiles, Square and MassMutual getting in on the action may be more significant. The payment processor invested $50 million in October, while the 169-year old insurer purchased $100 million in December. That represented 0.04% of the latter’s general investment account.

The case for bitcoin at $100K is simple: get more companies to invest 0.04% (or more) into the asset. Some expect considerable movement on this front over the next twelve months, with investor Bill Miller foreshadowing a "torrent" of corporate investment into the asset. Pierre Rochard, a "bitcoin strategist" at crypto exchange Kraken, expects 50% of the S&P 500 to hold BTC on their balance sheet by year-end.

While Rochard's claims seem overly optimistic, we should expect other major corporations to jump aboard the bitcoin bus. A few projected early adopters:

  • Tesla. One of the few assets that trades on mimesis as much as bitcoin, Tesla makes sense as a pioneer. Elon Musk loves attention-grabbing moves and has already dabbled with the idea on Twitter.
  • New York Life. The largest mutual life insurer in the US is also one of the most innovative, with an active venture capital practice. Through that vehicle, NYL invested in Digital Currency Group, a blockchain-focused investor and builder. Expect them to formalize that interest and follow MassMutual’s lead.
  • Facebook. Seeing Zuckerberg rebrand the company's cryptocurrency efforts after regulators snubbed Libra made me feel like Mean Girls Regina George: Stop trying to make FacebookCoin happen, Mark." I expect the newly-christened "Diem" to receive as much enthusiasm as its predecessor. Stuck in park while the Winklevii flex on Twitter, bitcoin may be Zuckerberg's best way to join the block party.

VC eats TikTok, TikTok eats VC

Lion covets leopard's spots,
Marrs his skin with smiling pocks.
So too the leopard seeks changes vain,
Desiring wreath of gold, a lion's mane.

In Power in the Valley, I described how the expansion of the venture asset class (aided by a zero-interest environment) and the mainstreaming of tech culture had resulted in an abundance of undifferentiated private market capital allocators. In a bid to keep up with the competition, venture firms have adopted increasingly similar portfolio services, commoditizing themselves in the process. The only real differentiating features, I argued, were personal ones: the best-performing VCs of the 2020s would-be titans of EQ, winning deals through the power of their personality.

This wasn't just because founders prefer to work with these people, but because these investors bring a tangible, differentiated benefit to the table: distribution. The VC with a million Twitter followers or a beloved podcast offers not just money or advice, but an audience. By working with personalities, founders effectively (and perhaps permanently) lower their blended cost of acquisition. Every time someone like Alexis Ohanian tweets about a portfolio company, he generates traffic for the business.

As distribution becomes the primary mode for capital allocators to differentiate themselves, VCs will increasingly optimize themselves to acquire "customers," effectively subsidizing future portfolio companies' CAC. In doing so, they'll look and act increasingly like influencers, expanding their presence on TikTok, YouTube, Twitch, and elsewhere.

As investors scale their personalities, personalities will look to scale their investing. Individuals like Ninja, MrBeast, Addison Rae, Loren Gray, and others have already done the hard part: amassing a loyal following. But building enduring wealth may require thinking beyond advertisements and endorsements.

In December, Charli D'Amelio announced her first venture investment into teen banking startup, Step. I expect many to follow her over the next twelve months. With social and real capital to be made in the private markets, expect more YouTubers, podcasters, streamers, and writers to show up on cap-tables, taking share from the capitalists seeking to emulate them.

Pro-Trump factions congeal into domestic terrorist group

An aging sun still sheds new light,
Yet shadows stay as daybreak's blight.
The gabbing mouth finds words yet said,
Bring plumbum skies, the Years of Lead.

The next two weeks will tell us a great deal about the direction of the Republican Party. While Wednesday's attempted coup caused some ardent Trump loyalists to break with the President, a depressing number of elected officials objected to the electoral outcome even after the day's violence. Eight senators and 139 members of the House, including Ted Cruz, Rick Scott, and Josh Hawley, stuck to the Trump party line. In doing so, they reaffirmed how much of the party has been enduringly coopted by conspiracy thinking.

The next year will illustrate that there is no easy way to stand-down these radical factions. Activity on right-wing social media platforms like Gab and Parler has demonstrated how truth-immune these individuals are: in Wednesday's aftermath, users alternatingly suggested that Antifa plants caused the day's violence (no) and that Ashli Babbitt's death was a "false flag" (also no).

Unencumbered by the constraints of office, Trump will feel free to embrace this group even more openly, fanning the flames of division through his inevitable toxic media empire. I fear that will lead to more violence masquerading as free-speech over the next twelve months and beyond.

In that respect, this period may come to resemble the "Years of Lead" that afflicted Europe (Italy in particular) from the 1960s to the 1980s, similarly incoherent and endurant. During those decades, radical right and left-wing groups undertook coordinated bombings, assassinations, and other attacks, with neo-fascists planning a coup in 1970 and again in 1974.

A corporate shopping spree

The bursar's sack sags with auric weight,
A gravid heft, blessed freight.
But riches never cross Death's division,
Meaning thriftlessness bruises buyers' vision.

Though the IPO market was red-hot, M&A activity declined in 2020, with the US down 29%. Expect a reversal of that trend in 2021, with last year's big winners using their new bulk to expand their fiefdoms.

Zoom, symbol of the pandemic, will feel the pressure to find a second act most acutely, with the vaccine putting the video-conferencer on the clock. As face-to-face meetings become possible once again, Zoom may look less like the vanguard of an inevitable future, more like a standalone product vulnerable to being squeezed by Big Tech's product suites.

Microsoft Team's effective neutering of Slack is the cautionary tale here. To prevent a similar outcome, expect Zoom to secure its "conferencing pipeline." The company's biggest vulnerability is that meetings do not start with Zoom. They begin with email, then migrate to the calendar, and finally, end in video conferencing. Google's obnoxious attempts to plaster the Meet button across Gmail and GCal emphasize this, representing an attempt to hijacking Zoom’s pipeline while securing its own.

Even if Zoom cannot compete with Google or Microsoft's full suite of products, it must secure this particular conduit. While the company is said to be exploring building both solutions in house, an acquisition, at least when it comes to email, makes considerably more sense.

Superhuman, last valued at $260 million in 2019, would represent a strategic choice. Rather than a full-suite email service, Superhuman is a client, meaning users don't need to register a new email address to join, a significant source of friction. Moreover, Superhuman has focused on premium knowledge workers (if not expressly enterprise), which should match well with Zoom's customer base. The downside is that Superhuman has not achieved mass-market adoption due to its pricing. Still, as part of a bundle, Zoom could afford to offer the product for free, allowing it to win users away from Gmail and Outlook with its superior UX.

Superhuman does provide limited calendaring features, which Zoom could expand as part of an acquisition. Should Zoom wish to bolster its efforts in this space, Clockwise or Calendly might make interesting plays, both offering avenues to ensure Zoom remains the default video-conferencer.  

Zoom will be far from the only player in the M&A arena. Four other Big Tech acquisitions I'd like to see happen:

  • Google buys Lyft. So often lumped together, Uber and Lyft's fates seem to have diverged over the last year. While Uber's stock is up 57%, buoyed by its food delivery division, Lyft is up just over 5%. As articulated by John Battelle, Google needs a "game-changing" move to stave off internal dissent and retain its reputation for innovation. With strong ties between Waymo and Lyft, now might be the time for the company to secure the future of its self-driving efforts.
  • Facebook buys Improbable. In a 2014 internal memo, Mark Zuckerberg articulated the importance of Facebook acquiring game engine, Unity. Last year, $U went public, reaching a market cap of $41 billion, at least an order of magnitude more than Facebook would have paid at the time. Over-capitalized by Softbank and struggling to ship games, Improbable represents an interesting target. Though potentially mismanaged, the firm's tech has the potential to be revolutionary, leveraging artificial intelligence to create complex, self-governing worlds.
  • DoorDash buys Darkstore. With a $50 billion market cap to throw around and the resurgence of in-person dining looming, DoorDash needs to find a new growth story to tell. With burgeoning efforts in convenience and grocery delivery, urban warehousing company Darkstore might represent a strategic purchase. The company reported operating 550 locations across 283 cities, delivering 1,200 different products through its FastAF app. Should DoorDash favor a more technologically adventurous option, Fabric could be a fit. Leaning on robots and AI, Fabric promises "profitable one-hour grocery, at scale." Darkstore has raised $30.2 million, while Fabric has brought in $136 million.  
  • Airbnb buys Oyo. Bloated with Softbank's capital, haphazardly managed, and buffeted by the pandemic, 2020 hasn't been kind to hotel network, Oyo. Though once valued between $8 billion to $10 billion, the Vision Fund has written down the value of its Oyo holdings by more than half. But with 530K rooms still under management and a strong foothold in India (and a sizable if tenuous grip in China), Oyo might provide a readymade way for Airbnb to grow its position in the Asia Pacific region, which the company's S-1 identified as its largest opportunity.

The third Summer of Love

Wine-drunk Cupid's arrows sing,
Giving lovers' hearts down-feathered wings.
With moisture drawn from Lethe's spray,
Irenic clouds turn minds to play.

With vaccinations expected to reach lower-risk populations as early as spring, the summer of 2021 may prove the most social, sexual, and generally hedonistic for more than thirty years.

While many have projected a revival of the atmosphere that took over Haight-Ashbury and beyond during 1967's warmer months, I expect 2021 to look more like Manchester in 1988. Often referred to as the "Second Summer of Love," that year saw the United Kingdom captivated by acid house, illegal raves, and rampant drug use. Though the first Summer of Love held hazy political and humanitarian goals, aided by the boundary-expanding properties of LSD, the second aspired to nothing more than sneaking into a warehouse and dropping MDMA.

Presuming we're short of full vaccination, I think 2021's revelers will have to play a similar cat-and-mouse game, and after a few politically sapping years, want for little more than music and good times.

Expect a sharp rise in Advil, Gatorade, and birth control consumption, and an uptick in venereal disease as second-order effects.

A tipping point for SPACs

The turtle slips into other shell,
Roomy home, space to dwell.
But hunted are these turtle dear,
Beware the friend with smiling spear.

SPACs raised about $64 billion across 200 listings in 2020, remarkable given that traditional IPOs brought in a reported $67 billion. This might be the year we see the new swap places with the old, as SPACs bring in even more money than traditional listings.

With $2.8 trillion worth of dry powder in the private markets (including $1 trillion devoted to buyouts), there remains plenty of money on the sidelines looking for suitable targets. The outperformance of 2020's venture-backed IPO class may encourage founders and investors to pull forward trading in the public market while the going is good, resulting in smaller businesses reaching retail investors.

As part of an emerging trend, expect an increasing number of venture firms to offer SPAC services to portfolio companies in a bid to accelerate the path to liquidity and grow their holdings. To date, Lux Capital, Firstmark, Tusk Ventures, and Ribbit Capital have all created SPACs — 2021 will see a further dozen or more join the ranks. The ideal targets for venture SPACs are portfolio companies that have been on the books for the better part of a decade and have yet to reach an exit. In this respect, investors in venture SPACs may have to grapple with some degree of adverse selection, as the most commercial companies eschew the assistance.

Three SPACs, I'd like to see happen:

  • Sequoia SPACs Thumbtack. Founded in 2008, Thumbtack has had a rocky year, forced to lay off 25% of staff in response to the coronavirus. The company's last round, in 2019, was flat from a 2015 capital influx that valued the firm at $1.3 billion. With more than $400 million raised across rounds and reported revenues of $150 million to $200 million, it may be time to tap a new set of investors.
  • USV SPACs Foursquare. After turning down a reported $900 million acquisition offer in 2015, Foursquare has continued its transformation from once-beloved social network to revenue-spinning B2B service. The company reported $100 million in revenue in 2019 and has raised nearly $400 million. After announcing a merger with Factual, another location data firm, the company is in good shape to garner public interest.
  • A16z SPACs Stack Overflow. It's hard to know which firm would be best positioned to take the company public. Though GIC, Singapore's sovereign wealth fund, led the 2020 Series E, operational complexities might make Andreessen a good fit. Stack Overflow was founded in 2008, expanding its Q&A platform to serve the enterprise.

Creators formalize as an asset class

From pen and paint fair rubies rush,
Inviting glances, the banker's blush.
But what price should earn this fluid drupe?
The question asked, so comes the group.

Earlier this week, I asked a question on Twitter:

Has a creator company ever gone through @ycombinator?

Somewhat a matter of semantics, to be sure. But struggling to find an example of a business that brazenly positioned itself as fundamentally personality-based.

While many mentioned startups that enable creators or leverage them for distribution, only one response fit the bill of a personality business: Justin TV. The precursor to live-streaming tool Twitch, Justin TV broadcast the life of founder Justin Kan, eventually offering others the chance to run their own channels.

Fourteen years after that effort, creator-centric businesses are ready to become an investable asset class. As articulated in the essay Will Joe Rogan Ever IPO?, creators are now capable of earning tens of millions in revenue with an extremely low cost structure. New infrastructural tools built for this segment have simplified creation, operation, distribution, and monetization.

The missing piece? Capitalization.

As discussed in the "VC eats TikTok" section, successful creators are already looking for ways to build their wealth, as reflected by this tweet from MrBeast:

I wish there was a way to invest in social media influencers! Idk anything about the stock market and I find it boring.

Experienced private market financiers will close the gap by serving as the informal heads of creator family officers or starting personality focused firms. One likely pioneer? A16z alum Balaji Srinivasan, who frequently tweets about the opportunity in the creator economy.  

(Aside: A passing idea I had this week that I think might be provocative and fun. What if I applied to Y Combinator? I'd share my application and document any notable lessons from the process. The idea would be to articulate and prosecute the case for creators-as-future-unicorns. The downside: on the off-chance I got in, I'd give up some ownership. I would love to hear your thoughts.)

Twitter takes flight

The singing bird who only splutters,
Finds a tune, commences flutter.
From old branches, new blossoms stem,
Meaning what once was one, becometh ten.

For all its staidness, Twitter demonstrated again how vital and powerful a social platform it is. By banning President Trump this week, in tandem with Facebook, the social network effectively neutered the spread of more inflammatory words and spurious statements from the commander-in-chief.

Consider it the start of the Year of the Blue Bird. After lagging behind its contemporaries for so long, Twitter finally seems ready to catch-up. I expect a steeper upswing to follow last year's +50% gains, buoyed by genuine product innovations. Fleets, Twitter's answer to Stories, is a good start, while the Breaker acquisition should juice the company's audio efforts. Getting rid of the two-timing Dorsey and bringing in a dedicated CEO would help, too. Kevin Mayer, stymied as the CEO of TikTok, thanks to political pressure, would make an exciting outside pick.  

As it stands, both Pinterest ($44 billion) and Snap ($75 billion) are valued more highly than Twitter ($38 billion), despite logging less revenue; both are growing faster. By the end of 2021, I expect Twitter to have surpassed Pinterest and more than doubled its current market cap.

Apple ups its podcast game

The seeing fruit seeks senses new,
With Nordic vines left un-slewed.
A pair of ears from leaves do spring,
As voices clamor for a novel king.

After launching in 2015, Apple Music, the company's streaming service, has grown rapidly, reaching 19% of the global music subscription market.

But Spotify represents a formidable opponent. The Swedish firm has maintained a share of 32 - 35% since 2015, more or less keeping pace with Apple's growth. Meanwhile, the company has entrenched its position in podcasting, purchasing software companies like Anchor, content networks like Gimlet, and personalities like Joe Rogan. Critically, Spotify noted that podcast listeners also listen to more music on the platform and are "more engaged." After reaching an uneasy detente with record labels, the company has finally found a way to build a truly unique advantage.

Apple has to follow suit.

Not only would it sting to fall further behind in the online music market it pioneered with iTunes, but much of its future relies on owning audio. Apple will reasonably believe that a strong base of audio subscribers will drive purchases of the Homepod — its answer to Amazon's Alexa — and eventually an in-car hardware device. Moreover, a unique audio offering increases Apple One's value, the services bundle that provides access to Apple TV+, Apple Arcade, Apple Fitness+, and more. Finally, content is increasingly a multi-media affair — buttressing the $6 billion Apple plans to spend on original TV programming with complementary podcasts would be savvy.

With that in mind, expect headway on both original content and M&A in 2021. After struggling to become the "Netflix of Podcasting," Luminary might make a sensible acquisition. Though the company has failed to win over consumers — after raising $100 million, Luminary managed just 200,000 downloads in its first year — it has built up an impressive roster of A-list hosts. Those existing deals could provide a shortcut to original content efforts.

Should Apple prefer a target with a larger listenership, it might consider Kast Media. The 11th largest US podcast publisher hosts shows from Sarah Silverman, Penn Jillette, and Eric Weinstein. That might staunch the sting of missing out on Wondery to Amazon.

Amazon buys Carnival to power drone delivery

Supposedly fun but never again,
Bubonic bark scuppers voyagers yen.
But grins are made from wounded sigh,
Where revelers danced, new birds now fly.

Ok. We've made it.

The reward for reaching the final entry of the list is my most far fetched prediction of the year. Bear with me.

Few businesses took as bad a beating as cruise companies in 2020, with travel bans and social distancing forcing many small operators to close their doors. Behemoths like Carnival, Norweigan, and Royal Caribbean, meanwhile, sold ships and took on debt to survive. In September of last year, Carnival announced they had sold a full 18 boats to an undisclosed buyer, representing 17% of its fleet.

While 2021 might bring better days, cruise operators are on the clock, burning a total of $1 billion a month. It may take some time to set sail, too: Carnival canceled all cruises through the end of March earlier this week. When they are finally able to hit the high seas, operators may find demand has weakened. An older customer base may treat confined spaces with newfound skepticism.

Enter Amazon. Under-the-radar, Bezos has been maneuvering to loop ships into the company's logistics empire. While much of this involves standard cargo shipping, with the company moving thousands of containers between the US and China in recent years, more creative applications have been considered. As early as 2016, Amazon was said to have considered “nearshoring”: purchasing ships to station close to large metropolises. These would serve as bases for drone delivery, with UAVs taking packages from deck to doorstep.

Hemorrhaging money in a potentially dying industry, cruise liners like Carnival — or much of its inventory — could be available at a historically low price. It might just be crazy enough to work.