How the Changes in Venture Capital is Creating Opportunities for Startups
In the first three quarters of 2021, venture capitalists all over the world poured in a staggering $454 billion in funding.
Jonathan Lavender, the Global Head of KPMG Private Enterprise, says,
“Almost everywhere in the world, VC investment is incredibly strong and I don’t see the market globally going cold. The amount of money being generated out there is massive and the willingness to invest in tech is just going up.”
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Sectors Drawing the Most Funding
Startups in FinTech, business productivity, health and biotech secured the most funding, and experts forecast these sectors will continue to draw significant investments in the future.
As the number of transactions that occur in the cloud has increased, so has the need for more cyber-secure systems. This has led to increased funding for cyber security startups, which will also likely attract more investor attention.
The environmental, social and governance sector (ESG) is also growing significantly and has crossed the radar of VCs. With increasing importance being placed on sustainability across the business world, the future of ESG startups looks bright.
Changes in Venture Funding
The current growth in venture capital signals a recharge of the economy and stability in the financial services industry. But due to growing competition from alternative financing methods, the investment landscape is experiencing more competition and giving startups a wider range of funding options.
A study from 2018 revealed that only 5% of startups now depend on venture capital in the early stages. This is not surprising considering that over the years, VCs have focused on technological startups, which do not constitute a majority of the startup landscape. But now, even for tech startups, VCs are facing more competition.
This is giving rise to new trends in Venture Capital, including:
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Crowdfunding/Democratising VC
The rise of alternative financing methods means venture capital is facing competition, most notably from crowdfunding and cryptocurrency.
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Alternative Data
VCs are focusing on innovation and quality above quantity. They are using alternative data tools to seek out startups they want to invest in.
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Sustainable Investing
In ESG, the zebras win over the unicorns — investors are keen to invest in companies valued at less than $1 billion and are focused on sustainability.
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Corporate VC Investments
The pandemic has accelerated the need for digital transformation, and many organisations have come to realise that there’s no need to innovate from scratch to improve their business efficiencies. They’re finding a better approach in partnering with startups that can speed up their digital transformation and help them meet new business goals. Hence, corporate investments in startups have also been rising all over the world.
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ICO/Cryptocurrency
The initial coin offering (ICO) that allows companies to raise funds via digital coins, which is less regulated than traditional funding, is proving to be fruitful for both investors and startups.
Right now, startup founders are better positioned to negotiate terms when raising capital.
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