As we have done in years past, our team at Two Sigma Ventures has taken some time as a new year begins to reflect on how the world evolved over the last 12 months. For many, the year repeatedly presented surprising twists and turns. A large number of employees are still working from home as COVID outbreaks continue. IPOs raised more money than ever before in 2021, but two-thirds of them now sit below their IPO price. The adoption of Web3 and digital identities appears to be in full swing, while at the same time individuals are craving the social interactions that have suffered in the last almost two years. In 2022, it will be fascinating to watch new, competing forces in our social, professional, and cultural lives emerge and interact.
Before writing our 2022 predictions, we also looked back on our 2021 predictions. Some of these predictions became true in some form. For example, we saw companies building products to serve the hybrid model of in-person and remote work raise funding at multi-billion dollar valuations. Other predictions, like our supply chain being re-imagined in a post-COVID world hopefully will become true in the future as problems continue to mount. You can read more in our 2021 Predictions Report Card.
The predictions below encapsulate some of our most anticipated emerging trends. We are eager to watch how technology changes our lives in 2022. If you are building a company in any of the areas below, we would love to hear from you.
1) 2022 will see the rise of new Layer 1 networks that will be some of the fastest growing investments of the decade – Dan Abelon
Layer 1 networks like Ethereum, Polkadot, Solana and others are basically developer platforms with massive network effects. While network effects allow these platforms to grow substantially, this is likely still not a winner take all space, especially this early in the game (Ethereum was only founded in 2015!). I predict that 2022 will see significant innovation around smart contracts that will be the basis for brand new protocols to be some of the fastest growing technologies in history.
2) Businesses of all kinds will invest in supply chain and logistics, including tracking, last-mile logistics and e-commerce – Lindsey Gray
COVID-19 exposed vulnerabilities in the supply chain, and I believe the continued meltdown combined with increasing consumer demand for real-time delivery will drive more investment in logistics and e-commerce capabilities. Retailers like Sephora are launching single-day delivery to compete with Amazon and get ahead of supply chain issues, and I anticipate more companies will follow suit — including small businesses.
3) Critical infrastructure will increasingly become a target for cyber attacks – Andy Kangpan
Infrastructure has become increasingly vulnerable to cyber and ransomware attacks. This year, we’ve seen a dramatic increase in cyber attacks, such as the Colonial Pipeline and SolarWinds incidents, that showed the weak state of cybersecurity in the first half of 2021. I predict that critical infrastructure will be a major target for these attacks, especially as we rely on more connected systems. For example, the emergence of major EV networks, with thousands of public charging stations connected to the larger power grid, brings in new cybersecurity threats.
4) The tight labor market will further push us toward automated services – Dusan Perovic
The Labor Department reported 10.6 million open jobs in November, while the number of workers quitting their jobs rose to 4.3 million. The industries that have seen the most workers leaving include accommodation and food services, wholesale trade, and state and local government. In response to this labor shortage, I foresee companies using more automation, digitization, and remote services. For instance, this is already happening in the food industry, where robots and automation are now standing in for fryers and food runners.
5) Web3 will lay the foundation for disrupting consumer tech, but Facebook will continue to thrive for the rest of the 2020s – Dan Abelon
Facebook’s rough news cycle has continued, and the new “Facebook files” only affirmed what we already believed about the company. Yet network effects are strong, users remain addicted, and even if there is new regulation, I wouldn’t expect it to impact usage or revenue numbers in the short term. Developers are flocking to crypto and continue to experiment with new ideas that I believe will replace the large web2 platforms in the long run. This will be an important chapter in the history of technology, but it will not unfold overnight.
We believe companies that were designed to be all-remote from the start, like our portfolio companies GitLab and Remote, will fare better than companies that have to work through the complexities of a hybrid model. We expect inequalities to become more pronounced, from gender to geography, and companies to eventually ditch hybrid work and go all-in on all-remote. Availability of talent will also encourage this shift. The market for engineering talent is competitive and global, and we’ll see more startups building their teams internationally.
7) The “Great Resignation” continues, with companies offering new/larger perks to recruit & retain employees. – Colin Beirne
In November 2021, the number of people who quit their jobs hit an all-time high of 4.5 million. As the “Great Resignation” continues, I anticipate more investment in tools that encourage employee engagement. For example, a company might use AI to formulate programs for individual employees based on wellness literacy, knowledge, and interests as well as measure the mental and emotional state of employees, or offer more training opportunities to upskill their workers, a perk that 48% of people said would entice them to move to a new company.
8) Funding for mental health treatments will double. – Frances Schwiep
Biotech funding is having a moment as we focus on our physical health, but I also expect to see more investment in mental health. COVID-19 brought mental health to the forefront, which I anticipate driving a major boom in funding. Psychedelics and cannabis will likely also continue to gain mainstream momentum and acceptance in the medical community as treatments for mental health.
9) Corporations will become a key source of climate tech funding. – Kyra Durko
Stripe made a splash with their climate investment announcement in 2021, not purchasing carbon credits but investing into startups attempting to solve some of the thorniest technical challenges that we must resolve to reach our goals. As a company that many other tech companies and enterprises strive to emulate, I expect this to have a ripple effect and encourage many others to commit to similar investing initiatives. The latest UN report on climate change, combined with 2021’s extreme weather disasters, are driving a new sense of urgency for investment in cleantech. But with the government slow to act, the private tech sector will have the opportunity to step up in 2022.
10) Consumers will enter a post-covid era with a more proactive approach to financial and physical health. – Kyra Durko
COVID was both an aggressive reminder and an opportunity for individuals to reset on their financial and physical wellness goals. In the years leading up to 2020, there was a shift away from preventative, primary care and a 119% increase in urgent care clinic visits. For many Gen Z-ers and Millenials, the annual PCP visit has fallen off the calendar. However, as new care models emerge to increase affordability and convenience of care, younger generations will have the tools to take greater control over their health. Financially, the personal savings rate hit a historic high in April 2020 of 33% – by far the highest since the department started tracking it in the 1960s. After COVID provided an unfortunate reminder that economic instability can be unpredictable, I expect many of these newly developed habits to stick.
11) COVID f*cked my data model: predictions are skewed due to data drift. – Frances Schwiep
After an entire year and a half of data skewed by unprecedented circumstances and consumer behavior, companies and systems will experience data drift: the degradation of a model’s accuracy over time. For example, the accuracy of Instacart’s model for predicting whether a particular product would be available at a given store went from 93% down to 61% in 2020. I expect this to drive more focus on DataOps in order to make data models more responsive to quickly changing behaviors.
12) Computing infrastructure will get fully abstracted away, and Kubernetes will become the standard way to build. – Vinay Iyengar
Kubernetes is here to stay as the default container orchestration technology. As computing infrastructure moves towards containerized architectures, I anticipate Kubernetes will continue to help developers build more reliable and performant cloud applications. There is a highly active community of developers working to improve the core technology, and I expect Kubernetes to become the new standard for building.