The Fourth Industrial Revolution

By White Star Capital’s Early Growth Team

As outlined in our recent post, our Early Growth Fund team has been working on four reports that provide detail on the macro themes that we believe will drive tech innovation in the coming years:

• the impact of widespread demographic shifts;
• the digitisation of all industries and enterprises;
• the creation of new digital infrastructures to handle the transfer and security of zettabytes of data;
• and finally, the demand for climate technology, new circular business models, and green innovation.

Our themes of focus have evolved since our first fund in 2014 in response to rapid technological adoption and the changing world around us, but the criteria we apply to each investment have remained consistent across our three Early Growth Funds to date.

Having published our first report on the Sustainable Global Economy last month, we’re excited to share our next piece of research on the digitisation of all industries and enterprises, which we’ve labelled the Fourth Industrial Revolution.

What is the Fourth Industrial Revolution?

The Fourth Industrial Revolution is the culmination of 300 years of innovation. Defined by the integration of physical assets and advanced digital technologies such as IoT, artificial intelligence, cloud computing, large-scale data analytics, and nanotechnology, creating smart interconnected networks and transforming traditional business models and operations.

We are entering a new age where consumer-grade SaaS is digitising every business and artificial intelligence is driving the shift towards automation, even in legacy industries such as manufacturing, logistics, and real estate.

Traditional B2B sectors stand to gain significantly. In 2024, the value created by the Fourth Industrial Revolution is expected to reach $3.7tn for manufacturers and industrial suppliers alone. Furthermore, an estimated 70% of new value created in the economy over the next decade will come from digitally enabled platforms. The automation of complex tasks will allow a new era of disruptive innovation.

In summary, our core areas of interest within this theme for our upcoming Fund IV include:

• Industrial technology: digital twins and virtual models, connected workforce, advanced analytics and IoT in manufacturing
• Healthcare technology systems: medical practicer management, patient engagement and monitoring, coding and medical billing
• Logistics and warehousing: supply chain optimisation, warehousing technologies, inventory management and demand forecasting
• Future of work: intelligent process automation, sales and marketing, intelligent document processing
• Financial applications: CFO stack, banking and fintech as a service, insurtech tools, B2B payments
• Real estate technology: data and opportunity discovery, agent tools and facility management, transactional tools

Why now?

Recent geopolitical tensions and higher-than-expected oil prices have strained global supply chains and driven inflation. In response, companies are increasingly focusing on cost management due to their limited ability to pass inflation onto consumers, who are constrained by factors such as diminished purchasing power and increasing household debt. Additionally, global supply chain disruptions, rising commodity prices, and a tight labour market are compressing margins.

Most developed countries face a shrinking labour force, driven by declining participation rates, falling birth rates, and ageing populations. The World Economic Forum in 2023 anticipates a 23% labour market churn in the next five years. Although advancements in productivity, AI, and automation are partly responsible for this shrinkage, they also represent a solution to this problem.

B2B operations and transactions typically involve many stakeholders and involve high degrees of complexity and the need for customisation. The lack of standardisation across industries and reliance on legacy systems complicate processes unnecessarily. Developments in API-driven architecture facilitate communications across the value chain, enabling capabilities like making decisions and analysing data in real time.

Millennials, or ‘Gen Y’, are expected to form 40% of the workforce by 2025, closely followed by Gen Z. Both generations are not just highly proficient in navigating digital platforms, but also hold elevated standards with regard to digital interactions, asking for digital user design and user interfaces of similar standards as experienced in their personal lives. This will drive demand for digital solutions in the workplace.

Key findings

• A total of $627bn was raised by startups operating in this space over the last three years, of which $114bn has been raised this year (January — February), defying the slowdown seen in other sectors.
• The Fourth Industrial Revolution is expected to create $3.7tn in value for manufacturers and industrial suppliers.
• The B2B commerce market is worth $120 trillion, 5x the value of B2C , but with only one-third of B2C’s online penetration.
• By 2030, 74% of the global workforce will be under 45, with a strong preference for digital experiences in their place of work or homes.
• McKinsey estimates that businesses that successfully implement digital transformation will gain a 25% median cost benefit.

If you have any questions or are an entrepreneur creating something in a sector covered by our research, please reach out to our team. They’ll be happy to hear from you!