10 Predictions for 2023

Posted on November 29, 2022

The most ambitious ideas have yet to be discovered. That conviction is what drives us day in, day out to strive to find and help the brightest founders take flight, the most powerful data science reach its potential, and the most impactful projects come to life.

As we look to 2023, here are our investment team’s predictions for what innovations are going to shake up the world as we know it.

If you’re a founder pursuing any of these – or other data science and advanced computing driven-ideas that deviate from the norm – we want to hear from you.

Innovations making data and software do more for the world

1. Large Language Models and Generative AI will emerge as foundational technologies for a new generation of applications. – Villi Iltchev

I predict we will see a new generation of enterprise applications emerge to challenge established vendors in almost all categories of software. Machine Learning and Artificial Intelligence will become foundation technologies for the next generation of applications. We will see a significant boost in productivity and efficiency resulting from the applications performing many tasks and duties currently done by professionals. Software will not just boost our productivity but will also make us better at our jobs.

2. 2023 marks the end of the First Era of Globalization and a resurgence in (North) American manufacturing driven by massive improvements in technology and the labor-driven advantages of China reducing. – Colin Beirne

After China joined the World Trade Organization in 2001, it experienced a 10+ year boom in globalization and manufacturing. A few big events started 15 years later: Brexit, an American election that favored isolationism, territorial aggression in Russia, China’s re-election of Xi Jinping for an unprecedented third term. I predict a convergence between this anti-globalization trend and the emergence of advanced technology that could bring manufacturing back to North America (Mexico and Canada might benefit as well).

3. Software-based innovations will help us get to net zero emissions. – Vinay Iyengar

Data science-driven startups that demonstrate strong domain expertise, a clear line of sight towards directly reducing emissions, and early market potential, will likely be able to improve the world we live in and achieve profitability in the next 5-10 years. From orchestrating distributed electric grids to applying advancements in AI to optimize green energy usage and production, I predict startups will play a big part in helping us solve the climate crisis. The next generation of legendary climate businesses will be global in nature, with many winning startups coming from Europe which is far ahead of the U.S. when it comes to climate action.

4. Machine Learning and Artificial Intelligence will not only enable innovation in life sciences but actually drive it. – Dusan Perovic

Over the last couple of years, an increasing number of companies are claiming they have the first drug that is fully developed with AI, and the jury is still out on who will win this battle. I don’t think it matters who wins–what matters is that there are an increasing number of drugs that will be enabled, and that data science will play a major role in discovering them. I predict this will allow life sciences companies to build much faster, more robust pipelines, and this platform approach will give these companies many shots on goal, decreasing the binary risk that used to plague biotech investors. TechBio will become more attractive as a result and will draw a lot more resources.

5. Synthetic biology developer tools will empower the next generation of scientific discovery. – Gabriella Garcia

Groundbreaking technologies like DNA sequencing and machine learning have radically changed TechBio, however the industry still struggles with data management and model optimization. Over the years, the synthetic biology landscape has evolved from platforms like Ginkgo, to narrow products like Bolt Threads, and back to platforms like Hexagon Bio (a Two Sigma Ventures portfolio company).* However, this new wave of SynBio platforms are being built around specific biological systems (fungi, bacteria, plants) so they can capitalize on learnings and data across shared genomes and build an astounding moat. To compete against legacy platforms, these companies will need to continually optimize their processes by building robust data engine flywheels. I predict that by partnering with emerging SynBio DevTools companies, new chassis-specific platforms will be able to optimize their analytics, scale-ups and experiment designs. I am excited about data platform companies that will enable the next generation of drug discovery platforms to accelerate their learnings and build differentiated data moats.

6. Founders will develop more human technologies to transform digital environments into something that feels less isolating and conveys warmth. – Marc Weill

All aspects of communication are now more digital than ever. Many educational institutions have changed to a digital teaching format, many physical stores have changed to an online format, and many physical jobs have disappeared as we have entered a digital economy era. I believe human contact and communication is the missing element in the current digital trend, presenting an exciting opportunity for founders to create impactful solutions that help overcome the isolation of remote work, combat issues related to mental health, and foster more productive collaboration.

Relentless inventiveness across FinTech, DeFi and Web3

7. The progressively cross-border, digitally native CFO is standing in the spotlight. She will demand new solutions to orchestrate business and oversee financial activities across borders and siloed systems. – Frances Schwiep 

I believe the underlying tailwinds of increasingly global and cloud-native business paired with increased pressure on CFOs to provide better visibility into cash flows means the era of chasing paper trails for expenses and invoices is over.  As businesses increasingly hire remote workers and conduct business cross-border, I predict what were previously manageable complexities for overseeing a business’ financial activities will become near impossible to orchestrate without new tooling. Siloed systems will need to talk to each other in a better and in a global way.

8. 2023 will see the continued development of fundamental web3 building blocks that will ultimately give rise to the winners of 2024. – Dan Abelon

If DeFi Summer was 2020 and NFT Summer was 2021, I predict that we don’t have a defining trend for web3 in 2023, but that what we do have instead is an undercurrent of heads-down building and experimentation being done both by developers as well as traditional brands, setting the stage for a really exciting 2024. On the developer side, one area to watch is messaging: enabling decentralized services to communicate directly with end users. On the brand side, I’m excited to see more experiments like those by Reddit and Instagram in recent weeks, that will help bring web3 into the mainstream.

9. The crypto industry strengthens its resolve, returning its focus to innovative on-chain use cases that will propel the industry forward. – Andy Kangpan

2022 saw the collapse of numerous centralized crypto institutions including FTX, Celsius, and Voyager. And yet, despite the claim that “crypto is dead,” I believe that the next wave of transformational projects are just getting started. I predict that a number of positive tailwinds for the market will emerge including more regulatory clarity, which will open the door for institutional adoption, and a refreshed focus on the principles that will drive true innovation in this industry. Founders building truly decentralized products will strengthen their resolve and bring forward a new generation of on-chain businesses that will drive a resurgence in the space.

10. Vertical software solutions will continue to modernize every corner of our economy, increasingly leveraging fintech to elevate businesses. – Kyra Durko

Embedded fintech is no longer a new idea, but a well defined industry with advanced product offerings. These technologies make it possible to build a strong vertical software business in industries that are core to our economy but have been overlooked to date – insurance agents, car dealerships, financial advisors, corner stores, hair salons, and more. Previously, industries like these may have been seen as too small or without the ability to invest enough dollars into software to make the economics of vertical software viable. I believe embedded fintech has unlocked additional monetization opportunities and the potential for next gen vertical software to grow deeper into our economy.

If you’re a founder building a data science-enabled business, we want to hear from you: laurenx@twosigmaventures.com.