Global
14 June 2021

Top Startup Trends in 2021: Fresh Data from Our Application Season

Written by Cait Brumme

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Each year, MassChallenge recruits high potential, high impact entrepreneurs from around the world for our accelerators in Austin, Boston, Houston, and Rhode Island. This year was a banner year, reflecting a booming entrepreneurial sector. MassChallenge sourced over 3,000 early stage startup applications, representing 48 U.S. states and 66 countries worldwide.

Geography, however, isn't the only diverse element of this application class. The startups represent a vast range of technological concentrations, with founders of diverse race and gender identities: in the latest round of applications, 40% of startups had at least one founder who was female or non-binary, and over 50% had at least one founder of color, with 20% being Black or Latinx.

Given the breadth and scale of these efforts, each year we look closely at our applications to identify key trends relevant to the startup and emergence business landscape. This blog highlights the three key industry trends that we expect to see more of in 2021 and beyond:

  • Enterprise Tech and Digital Health are surging
  • Artificial intelligence and machine learning is here to stay
  • Startup activity is booming outside Silicon Valley

KEY TREND 1: DIGITAL HEALTH AND ENTERPRISE TECH LEAD THE PACK

The industry leader in this year’s applicant pool was digital health, encompassing 14% of all startups, followed closely by enterprise technology at 12%. Within digital health, digitally-enabled wellness, including self-care and care for others, was a pronounced theme reflecting almost 35% of applications. 

What Could This Mean?

Activity in the digital health sector is surging in the wake of the COVID-19 pandemic. Not only are patients increasingly open to using digital health devices, but health care providers are eager to digitally supplement or transform how they offer services in order to drive increased access, effectiveness or reduced cost. Expanding access to health care is the kind of equitable progress large scale global solutions require. 

The rise of enterprise tech is yet another response to the rapidly changing landscape of how people live and work in a post-pandemic world. That includes how we interact with colleagues, build brand awareness, and even scale virtually. The data shows that founders are seizing the opportunity to help businesses work more efficiently and safely in the future. We look forward to fostering the growth of these teams, and finding mentors who connect with their innovations and can help increase the investing potential of these young startups.

Some emerging sub-categories of note: IOT accounted for 7% of applications, while AR/VR made up 4%. These sectors have been on MassChallenge’s radar for years, but we expect to see significant and rapid movement in these areas as more funders see the potential for growth.

KEY TREND 2: AI/ML CONTINUES ITS “SOFTWARE EATS THE WORLD” MOMENT

In last year’s Key Trends’ blog theme we highlighted that “AI and Machine Learning is here.” And this year’s applicants proved that “AI and Machine Learning are sticking around.” How do we know? Of this year’s applicants, 35% indicated that AI/ML were core to their model, across all industries, not just digital health and enterprise tech. If we include big data and advanced analytics in the total count, AI/ML becomes a focus for nearly 50% of startup applications. 

What Could This Mean?

Trends indicate that AI/ML is on its way to becoming household technology built into many different products, services, and offerings. This extends across all sectors, not limited to highly specific areas of industry. The far-reaching impact of AI/ML has yet to be measured, but what we wrote in last year’s blog is now a reality: AI/ML will drive the meaningful next wave of disruption similar to software.

MassChallenge is not the only industry leader noticing the surge of AI/ML. Forbes recently published its third annual AI50, a list of the 50 most promising American AI companies. While explaining the manifold ways AI/ML could be used to improve everyday life, Forbes includes its use in “new services for remote workers and students, beef[ing] up online shopping and dining options, mak[ing] customer call centers more efficient and speed[ing] development of important new drugs.” 

A report from Gartner also suggests AI/ML has huge growth potential in industries like digital marketing, stating that “84% of digital marketing leaders believe using AI/ML enhances the marketing function’s ability to deliver real-time, personalised experiences to customers.

“As adoption of AI applications accelerates across industries, we are beginning to see AI defined more broadly as a universal tool as opposed to its own standalone category. No longer just a tool for medical imaging or speech-to-text translations, AI is beginning to appear everywhere from the readily apparent, like autonomous vehicle navigation systems, to the not-so-obvious, like predicting whether a water pipe will burst in a municipality,” said Mark Legare, Venture Investor at Innospark Ventures. “This year, we expect to see AI continue to tackle more problems of greater consequence, such as predicting patient health outcomes, vulnerability of certain climate events, or providing financial advice as a de facto financial advisor. As such, as we expand our trust in algorithms and the products they power, it will increasingly become paramount that we understand the “how” and “why” behind the outputs. Our prediction? Winners will prioritize transparency.”

KEY TREND 3: LOCATION LOCATION LOCATION...ISN’T SO IMPORTANT ANYMORE

As mentioned above, 48 U.S. states and 66 countries were represented in this year’s round of applications. In those applications, 90% of founders were non-Silicon Valley innovators and 55% launched their startup outside of a MassChallenge hub city. We noticed increased activity in cities not commonly known for startup activity and new venture funding including Baltimore, Cleveland, Dallas, and Philadelphia. 

What Could This Mean?

Location may not be as essential to a startup’s future. 

Earlier this year, The New York Times reported on the tech exodus from Silicon Valley, pointing to the flexibility that remote work offers to tech workers and founders. The article noted that Austin, one of our hub cities, is now the top pick for workers leaving San Francisco, according to moveBuddha. But Austin isn’t alone... 

The exodus has led other cities to get creative as well. Topeka, Tulsa, and Savannah have become popular landing spots for tech workers, thanks to financial reimbursements they’re offering to new workers and homebuyers—a trend that is only going to continue as more cities discover the positives that innovation can have on their economy as well as smart city efforts.

"New Age Capital invests in cities in the US where there are large populations of Black and Latinx people. Typically, these founders are in places like New York, Chicago, LA, Miami, Dallas and others - which are key areas for new idea generation and business formation," said LaDante McMillion, Managing Partner of New Age Capital. "The reach extends; so far in 2021 we've seen compelling companies located in Tulsa, OK; Huntsville, AL; San Antonio, TX; Cleveland and Columbus, OH. Access to high-quality founder talent has become more democratized because of the virtual turn of events, providing more opportunity for success out of non-traditional startup development hubs."

The pandemic has done more than make living outside of Silicon Valley more appealing, however; it’s also helped spur a rise in business formations. Eig.org wrote about the surges they noticed in 2020, which we expect to continue into 2021, as a greater number of founders realize they can change the world from whatever corner of the globe they prefer. 

That is why MassChallenge remains on a mission to equip entrepreneurs with the tools, knowledge and relationships they need to disrupt the status quo and solve massive challenges. As we work to chip away the barriers to entrepreneurship for anyone with a great idea and the will to maximize their impact, we are excited to see there may be wind at our back. 
 

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