Norwest Venture Partners

8 predictions for 2014 from a VC's perspective

January 2, 2014: 1:08 PM ET

A global Internet & venture capital investor offers his take on the year ahead.

By Sergio Monsalve, partner, Norwest Venture Partners

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FORTUNE -- As we end a successful 2013 for the tech/Internet venture world, I wanted to share some thoughts on what may be coming in 2014 as it relates to major global Internet & mobile trends, the venture capital funding environment, major emerging subsectors of growth, and the public markets.

Top 8 predictions for 2014:

1. Mobile will continue to disrupt Internet incumbents: Mobile Internet and e-commerce adoption will accelerate and surprise even the most bullish predictors. For example, Facebook (FB) CEO Mark Zuckerberg recently mentioned that 48% of its Daily Active Users log in via mobile. I believe this number could reach 70%-75% by the end of 2014. Also, I predict that much of this usage and growth will come from developing countries in Asia and Latin America.

2. Marketplaces 2.0 will thrive as a mega venture category: In the U.S., we will look back at 2014 as the year of the two-sided marketplaces. Two-sided marketplaces are ones where end users participate in supplying the service or product as well as consuming it. These marketplaces will show the world that consumer-to-consumer commerce continues to flatten the world of e-commerce, while creating very defensible business dynamics. I predict that within just three years, the market caps of companies like Uber, Etsy, Lending Club, and AirBnB will together easily surpass eBay's (EBAY) market cap. This dynamic will give way to the birth of the "Marketplaces 2.0" era.

3. Consumerized Business Applications will come of age: The social and mobile web will continue to penetrate the enterprise via simple consumer applications. These are applications like Dropbox, Evernote, Prezi, and many others that happen to be adopted by end users first before the enterprise takes notice. Box, Evernote, Dropbox, and several other "lightweight workflow" applications will IPO (or prepare for an IPO), and this will make the bigger enterprise players continue to take notice. IT directors will be increasingly challenged to maintain security and control of their IT infrastructure given much of their data is flowing to the cloud. Also, as BYOD (bring your own device) continues to proliferate, data will continue to become much more distributed and security will get much more complex. 

4. EduTech and MOOC's will disrupt traditional education: For many years, venture capital investors have been puzzled by the fact that investments in education have not delivered large returns, even though the size of the markets are very large. However, over the last few years, education disruption via new tech has now proven a real big business, and large exits may be in the wings. With the emergence of companies like Coursera, Udemy, Udacity, Minerva, Lynda, and others, I predict edutech will thrive in 2014. I also believe that 2014 will be the year that slow-moving incumbent educational institutions like the traditional K-12 and post secondary educational institutions will say "We better get our head in the game or else." Progressive universities like Stanford and MIT are already being aggressive at creating online offerings.

5. The BRICs Internet sector will see a bright 2014: After the financial crisis of 2008, the BRICS -- Brazil, Russian, India, and China -- struggled to keep pace with the U.S. recovery and with the Silicon Valley ecosystem. I think this trend will abate in 2014, and the BRICs will once again capture some positive headlines. Brazil, Russia, India, and China all have been developing and maturing very impressive Internet properties in the last few years, and some of those will be ready to hit the IPO market in 2014. I predict Brazil will successfully host the World Cup next year (and perhaps even win it) and this will help bolster its overall image. Several of Brazil's most interesting Internet companies will take advantage of this momentum and benefit. India's Internet sector is also coming of age, especially when considering the fact that India's upper and middle class are predicted to continue to grow dramatically in the coming years. Pro-business election results in India could also bolster momentum. India also benefits from a young population with increasing access to smartphones. China will also regain some momentum after a period of stumbles and some distrust. After several mediocre years for the Chinese Internet sector, we will see stabilization and investors will begin to reinvest slowly back into China. Qunar's (QUNR) IPO in October was an appetizer, and a leading indicator of the big meal to come. The upcoming mega-IPO of Alibaba is expected to reignite venture and public equity activity and could trigger a watershed event that China needs.

6. Internet M&A deals will rise: As a result of an accelerated trend toward globalization and shifts from web to mobile consumption, most Internet giants including Facebook and Twitter (TWTR) will have to become much more agile and acquisitive to keep pace. They will also need to further develop their own full-fledged "smart ad network" and enhance mobile capabilities. I believe this will result in a spike in more mobile and adtech M&A in 2014. I predict Internet stocks will be up reasonably high in 2014, giving the Internet giants' solid ground from which to make more acquisitions. The emergence of mobile social networks will continue to fragment mind share, especially in the teen and tween demographic. For example, Snapchat, Vine, Nextdoor, and Instagram are examples of mobile social networks that have shown Facebook's and Twitter's vulnerability, especially when it comes to young mobile users. The fact that the social graph is much more "transportable" on the mobile device than on the PC makes all social incumbents more vulnerable. This is one reason why I think M&A is important for them; they must maintain control of the social mobile world, and they cannot do this relying largely on an organic growth strategy. In 2014, the experts will look back at Instagram's acquisition by Facebook as a genius move that will further embolden other large social properties to step up inorganic growth strategies.

7. Bitcoin will thrive: I think it's evident that Bitcoin will continue to rise, but will also show extreme volatility. Adoption by outlets such as Overstock.com and other retailers will continue to grow. However, the banking industry and governments will remain somewhat split. These institutions will continue to misunderstand the real opportunities and threats this crypto currency provides. Bitcoin has the opportunity to decouple the economic world from the political world.

8. NASDAQ Index will rise again in 2014: The NASDAQ index could end the year at 4,500, but may even get close to the magical 5,000 mark set at the peak of 2000. This will create a massive amount of chatter in the investor blogosphere around talks of a "Bubble." I predict that investors will get captivated by the bubble chatter and will obsessively compare 2014 with 1999 and note that this is the 15th year anniversary of the first tech boom. While there may be anxiety and volatility in the tech-heavy NASDAQ, I think the overall upward trend should continue. The retail investor will finally come back to the market and benefit.

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About the Author

Sergio Monsalve is a partner at Norwest Venture Partners. He holds an MBA from Harvard Business School and a bachelor of science degree in management sciences and engineering (industrial engineering) from Stanford University. You can follow him @vcserge

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