Matt Carbonara is the Managing Director, Venture Investing at Citi Ventures
As our technological world rapidly evolves around us, venture capital always strives to follow close behind. Facing a seemingly daily influx of new innovations coming to market, there’s certainly no shortage of trends to chase for investors looking for the next hot growth opportunity. Our constant challenge is to look past mere flashes-in-the-pan, identifying long-term secular trends that are here to stay.
Here’s a strong indicator of one such shift: enterprise technology companies attracted $30.42 billion in funding last year, outpacing their consumer-tech peers (by a third) for the first time in five years. This recent trend reflects a deeper evolution at play, located at the intersection of software development, adoption of cloud technology, and data analysis—and as investors have clearly wagered, we’re still at the early stages of this sea change. By diving into the key factors driving enterprise tech’s dominance, we can see how it arrived at this inflection point—and why it will keep growing right on course.
- Every company is becoming a software company.
From D2C retailers to established financial institutions, the underlying technology of 21st-century businesses enables everything they do, from payments to CRM, cybersecurity, information management, application development, and beyond. And as the modern customer’s expectations for speed, service, and feature velocity set an ever-higher bar, enterprises are now attempting to meet that standard by developing and deploying new enhancements for their digital workflows. While their ambitious digital transformations carry promises of returns in both efficiency and revenue, they also come with their fair share of internal disruption, which is no easy road to hoe. Taking an entire organization’s workload into the cloud, for example, requires not only moving to a new type of infrastructure, but also a new set of tools to develop, test, deploy, secure, monitor, troubleshoot and support those workloads, as well as assembling a team of software professionals with the proper processes to develop and implement those applications. This company-wide need for increased digital proficiency and streamlining is met by the growing enterprise tech market, whose innovative solutions provide both the scale and agility those future-facing firms demand today.
- Software developers are now key stakeholders within the enterprise.
With their expertise now a crucial influence on the evolution of the organization, software developers aren’t merely sought after to build in-house applications and services—they’re then charged with leading strategic initiatives that directly impact the bottom line. As a result, they are responsible for selecting the specific products and technology they need to create and implement new solutions for the company. Facing such a knowledgeable customer, enterprise software startups now have a new opportunity and challenge when taking their products to market: engaging savvy software developers who fully understand the technical backend, and whose demands are thus much more outcome-oriented, means tech vendors must find a way to reach these developers and prove value quickly. It also means that the monolithic, static infrastructure of traditional enterprise solutions is now being replaced by a dynamic collection of microservices—both broadening the playing field for providers and allowing software developers to get precisely what they need, when and where they need it—on demand.
- Enterprises know their data holds valuable insights—now they need to build the digital infrastructure to mine it.
In the last several years, most companies have come to appreciate the power of big data to provide actionable insights and reveal effective strategies. But fully capitalizing on those learnings requires a robust internal ecosystem in order to operationalize the use of that data—and this ambitious, multi-step initiative calls for a number of technical tools and solutions. First, enterprises need to build a pipeline to properly capture their data; they then need to manage the privacy and security of that data; next, they must build models to enable insights and automate decision making; and even the last step of deploying those models is anything but: subsequent testing, monitoring, and analysis are required on an ongoing basis to ensure those models are accurate and unbiased. To address each and every one of these challenges along the way, organizations must build data operations and machine-learning operations lifecycles, and enterprise tech startups are answering the call with their diverse menu of solutions.
Observing these organizational and technological shifts together, tech founders and investors alike have determined there is fertile ground for both innovation and growth—and the investment landscape confirms that perspective, with over 50% of seed funding now sown in enterprise (vs. consumer) tech startups. In addition, the COVID-19 pandemic and its societal impact have only accelerated the broader migration from the physical realm to the digital, bringing major corporate changes with it—from increased scaling through the cloud to fortified cybersecurity, enterprise tech solutions have risen to our current crisis’s challenge.
With increased sensitivity to an unpredictable world, corporate decision-makers now fully embrace the need to have infrastructures that are resilient, dynamic, and flexible. While the pandemic is temporary, that strategic mindset is here to stay—and enterprise tech will remain an abundant area of investment for both business leaders and venture capitalists for years to come.