Digitisation, productivity growth and opportunity areas

The chart below is taken from a McKinsey Global Institute report into digitisation of the American economy (it’s page 5 of the executive summary). The major conclusion of the report is that large swathes of the economy still haven’t digitised, and they estimate digitisation could add $2.2tn to US GDP by 2025. That’s 13.4% of the $17.4tn GDP recorded in the US last year.

I like this chart for two reasons. Firstly the sectors towards the top with more green because they are highly digitised are showing greater productivity growth than the lesser digitised sectors. Admittedly this is a correlation and doesn’t imply causation, but it strongly suggests to me that startups which force sectors to digitise are doing some good in the world, and so therefore, are their investors.

Secondly it gives a framework for thinking about our investment strategy. We describe our focus as ecommerce, marketplaces and related software which maps best onto the education, retail trade, entertainment and recreation, and personal and professional services sectors below. They are just starting to digitise, which feels like a good place for an early stage VC like Forward Partners to be investing. Looking forward to the next fund then we should be heading lower down the table, and healthcare and hospitality stand out as sectors where large numbers of highly valuable companies might be created next. We are already seeing increasing VC interest in healthcare (including form us), but market timing is a big question for many of the startups in this space.

 

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