Industry Trends And Current Innovations Transforming The World Of Venture Capital
Sanjay is an experienced director with a demonstrated history of setting up and running a startup acceleration ecosystem, and actively associated with venture capital, and private equity industry.
Over the last few years, the Venture Capital investments have transformed significantly, from VCs funding small groups of startups, to availability and infusion of funds through new entrants in the market, to fewer calculated investments for better and more predictable exits.
Self-contained startup ecosystems that provide startups with funding, incubation space, mentoring and connections to industry are playing a role of a catalyst. It is evident that the ecosystem building is all about working with a number of startups who are actively seeking connections and funding from the VC and angel communities. To keep up with the investment world, it is important to understand the VC landscape, language, and investment trends.
As per a Bain & Company report, the Indian VC industry invested about $10B in 2019. This was driven by large deal volumes and large deal sizes coming mainly from four key sectors: B2B Commerce (which accounted for 35% of the total investments), Consumer Technology, SaaS Software and Fintech. Increased investments also occurred in EdTech, FoodTech, and HealthTech.
Despite huge capital deployments during 2019, it turned out that the end of 2019 saw about $7B in cash reserves still available for investments - seemingly a positive indicator for continued investments to continue in 2020. Although the fund-raising outlook for 2020 looks promising, thanks to the current COVID 19 global issue, VCs are likely to exercise caution and go with a wait and watch approach.
Although the public markets are showing high levels of volatility due to the current COVID 19 situation, VCs probably will see this as a promising time to be investing; more so because venture investments are generally isolated from public markets and investing in good visionary and opportunistic projects will result in enormous value creation regardless of market cycles. Additionally, the current situation will allow VCs to deploy their capital at lower valuations while remaining extremely selective about their investments.
A few trends that the VCs will look into during the current times are: reinvesting into winners in their current portfolio companies; opting for startups that have demonstrated capital and operational efficiencies; startups that are operating on long runways; betting big on investments by external lead investors and co-investing; rationalizing the valuation process and seeking lower valuation terms, and crafting structured investment terms to protect the investors and their interests.
Globally, from an investment standpoint, the other trends that the VCs are closely considering and upbeat about are:
1.Solving real-world problems - the impact startups
2.Plant-based meat alternatives
3.Innovations in B2B applications
4.Augmented Reality, Virtual Reality & Mixed Reality
5.Applications for automating the Modern Economy
6.Data and AI; Artificial Intelligence for enterprise applications
7.AI for safeguarding against destructive intrusions
8.Electric Vehicles
9.Productization of Machine Learning
10.Elevated valuations will come from startups who have a product strategy and access to unique or proprietary data sets
Final Thoughts
In 2020, VCs will be selective in picking startups, and will expect startups to bring in business model efficiencies to manage burn and growth. Startups should expect lower valuations and need to stay focused on their fundamentals, i.e., customer retention and cash flow. Startups that focus on gaining near term visibility and staying profitable will win in this new world.
Over the last few years, the Venture Capital investments have transformed significantly, from VCs funding small groups of startups, to availability and infusion of funds through new entrants in the market, to fewer calculated investments for better and more predictable exits.
Self-contained startup ecosystems that provide startups with funding, incubation space, mentoring and connections to industry are playing a role of a catalyst. It is evident that the ecosystem building is all about working with a number of startups who are actively seeking connections and funding from the VC and angel communities. To keep up with the investment world, it is important to understand the VC landscape, language, and investment trends.
As per a Bain & Company report, the Indian VC industry invested about $10B in 2019. This was driven by large deal volumes and large deal sizes coming mainly from four key sectors: B2B Commerce (which accounted for 35% of the total investments), Consumer Technology, SaaS Software and Fintech. Increased investments also occurred in EdTech, FoodTech, and HealthTech.
Despite huge capital deployments during 2019, it turned out that the end of 2019 saw about $7B in cash reserves still available for investments - seemingly a positive indicator for continued investments to continue in 2020. Although the fund-raising outlook for 2020 looks promising, thanks to the current COVID 19 global issue, VCs are likely to exercise caution and go with a wait and watch approach.
Although the public markets are showing high levels of volatility due to the current COVID 19 situation, VCs probably will see this as a promising time to be investing; more so because venture investments are generally isolated from public markets and investing in good visionary and opportunistic projects will result in enormous value creation regardless of market cycles
Although the public markets are showing high levels of volatility due to the current COVID 19 situation, VCs probably will see this as a promising time to be investing; more so because venture investments are generally isolated from public markets and investing in good visionary and opportunistic projects will result in enormous value creation regardless of market cycles. Additionally, the current situation will allow VCs to deploy their capital at lower valuations while remaining extremely selective about their investments.
A few trends that the VCs will look into during the current times are: reinvesting into winners in their current portfolio companies; opting for startups that have demonstrated capital and operational efficiencies; startups that are operating on long runways; betting big on investments by external lead investors and co-investing; rationalizing the valuation process and seeking lower valuation terms, and crafting structured investment terms to protect the investors and their interests.
Globally, from an investment standpoint, the other trends that the VCs are closely considering and upbeat about are:
1.Solving real-world problems - the impact startups
2.Plant-based meat alternatives
3.Innovations in B2B applications
4.Augmented Reality, Virtual Reality & Mixed Reality
5.Applications for automating the Modern Economy
6.Data and AI; Artificial Intelligence for enterprise applications
7.AI for safeguarding against destructive intrusions
8.Electric Vehicles
9.Productization of Machine Learning
10.Elevated valuations will come from startups who have a product strategy and access to unique or proprietary data sets
Final Thoughts
In 2020, VCs will be selective in picking startups, and will expect startups to bring in business model efficiencies to manage burn and growth. Startups should expect lower valuations and need to stay focused on their fundamentals, i.e., customer retention and cash flow. Startups that focus on gaining near term visibility and staying profitable will win in this new world.
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