The Digital Economy Index 2021

We created the Digital Economy Index to analyze and highlight the shift towards a world where every sector is transformed. We focus in through a consumer lens, on how each part of their lives from wellness, financial services, entertainment, shopping, to personal productivity is reimagined. The term “Digital Economy” was first used 25 years ago by Don Tapscott, and we believe that this term remains relevant as our lives become increasingly digitized.

In our second series, we examine the state of the digital economy as we emerge from the Covid-19 pandemic. After significant outperformance of technology companies during 2020, digital economy returns have lagged as performance has reverted to the mean. Global companies attribute disappointing sales figures to a return to physical shopping and an increase in regulation, especially in China. Overall, however, these disruptive businesses continue to drive innovation in retail, financial services, transportation, and other industries, creating outsized value in the long-run relative to incumbent players.

In 2020, Covid-19 spawned a set of challenges that accelerated digital trends across all industries of the global economy. Though a return to normalcy is underway through vaccinations, return to office is still not at full capacity and dining, recreation are also lagging.  Remote work drove the rise of adoption of productivity tools and improved access to  global talent. Companies can attract talent without having a HQ, even setting up new global teams.  As such, we saw a major exodus away from cities, creating a dramatic rise in Prop Tech and many successful IPOs in this sector.

Ecommerce penetration across all verticals such as food ordering, grocery and home goods, has increased.  With the rise in demand and access to increased capital, we have seen companies now adopt infrastructure to help manage their supply chain, become more efficient, and find new ways to reach consumers. With all the time spent digitally at home and on smartphones, the creator economy ballooned, and tools to support monetization and business enablement are starting to take off.

Segment and Company IRRs were calculated under both an equal-weighted and market-weighted methodology:

At the start of every period (e.g. August 2020 for 1YR IRR, August 2016 for 5YR IRR, etc.) the Index buys the market cap of all companies that are trading in that specific time period. Only companies that were public for the entire time period are considered. A new company is not added to the index if it starts trading in the middle of a certain time period (e.g. Spotify is not considered in the Social/Entertainment 5YR or 3YR index starting in 2018 shortly after their IPO. It is only added to the index for the 2YR IRR onwards).

Under this methodology, a portfolio composed of two fictional companies, Company A ($30Bn Market Cap. growing at 10% for 1 year) and Company B ($1Bn Market Cap. Company growing at 100% over the same period) would have a combined market cap. increase of ~13% since the 10% increase in Company A would dilute the 100% return of Company B. In the equal-weighted methodology the return would be 55%. 

- A Company is considered "Silver" if it achieved an IRR of over 20% over the longest analyzed trading time period and has been publicly traded for over 2 years.

- A Company is considered "Bronze" if it achieved an IRR of over 15% over the longest analyzed trading time period and has been publicly traded for over 2 years.