In 2021, the worldwide venture capital investment market was valued at US$ 211.3 billion. According to the publication, the market will reach US$ 584.4 billion by 2027, with a CAGR of 20.1 percent from 2022 to 2027. They are constantly watching and analyzing the direct and indirect effects of the pandemic on various end-use sectors, keeping in mind the uncertainties of COVID-19. As a prominent market contributor, these insights are incorporated in the research.
Venture capital is a subcategory of private equity (PE), in which venture capitalists invest in entrepreneurs to help them grow their businesses. These investors get an ownership position in the firm, participate in the decision-making process, and provide technical and managerial experience, network access, and other services to help the startup succeed. Venture capital investing is gaining popularity because it gives investors with above-average profits while also assisting in the growth of technology. In recent years, venture capital investment activities have increased significantly in countries with favorable legislative frameworks and sectors with greater levels of innovation.
Trends and Drivers in the Global Venture Capital Investment Market:
The industry is now expanding due to an increase in the number of startups, as well as increased venture capital investments from mutual funds and financial organizations. In addition, rising investment activities in a variety of sector verticals, such as healthcare, biotechnology, agriculture, and media and entertainment, are boosting market development. Furthermore, to make better investment selections, venture capitalists are using algorithms and machine learning (MI) to discover firms with a greater growth potential. However, the worldwide spread of the coronavirus illness (COVID-19) and the resulting lockdowns enforced by governments in a number of nations have had a substantial influence on industry growth. As a result, a number of companies and their operations have come to a standstill. As a result, Venture Capitalists are adjusting their strategies to cope with the quickly shifting market circumstances. Once normality is restored, the sector is expected to flourish again.
We anticipate a greater eagerness among investors in 2022 to concentrate on investments that matter.
Consider it “excellent returns with…” Strong returns are no longer enough for investors. Many returns in the recent past have taught us that they must be conditioned by a point of view and a feeling of long-term stability. In 2022, savvy investors will want a side of social justice, gender equality, racial justice, climate change, human performance, conquering space, and so on. (Obviously, not all points of view must be favorable; we’re merely optimistic about the trend of investors selecting corners this year.) In 2021, the notion of “Returns Plus” will also be prominent in M&A agreements. “Successful organizations are increasing their M&A skills to solve issues in talent retention, revenue synergies, and ESG value generation,” according to Bain.
So, what does this imply for venture capital in the early stages in 2022?
Venture-backed firms had a record year last year when it came to going public, both via IPOs and SPACs. B2B Saas, which is Valor’s key investment industry, maintained the top category of business in an IPO or SPAC for 2021.
From 2021 onwards, new public businesses are actively acquiring smaller, fast-growing B2B SaaS startups, such as those in early-stage portfolios. M&A activity exploded in 2021, with several of the biggest transactions ever recorded. Consider the $29 billion Square-Afterpay merger, the $14 billion McAffee transaction, the $5.3 billion KKR-Cloudera agreement, or the $4.5 billion Cisco-Acacia deal. There were over 20 tech-related M&A acquisitions worth more than $1 billion in total. The heated M&A and IPO market is transforming the early-stage venture funding environment downstream.
#1 – AI-enabled startups will stand out.
True, each new year tends to be heralded as the year of AI start-ups. So what makes you think 2022 will be any different? AI has become a catch-all phrase that borders on a buzzword, but in 2022, we’re more likely to witness AI in action that will appeal to investors.
As AI-enabled start-ups develop new integrations that can learn quicker and produce better outcomes, AI will become more integrated into the fabric of business platforms. While self-driving vehicles may catch the headlines, Venture Capitalists will be looking for firms that integrate AI into essential elements of the economy such as warehousing, distribution, and retail.
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#2 – Cleantech will be more appealing than it has ever been.
Themes of climate change and environmental sustainability, as well as an attraction to green technology that will pave the road to realizing ambitious net zero emissions objectives, remain embedded in our collective consciousness thanks to the awareness produced by COP26.
During the conference, more than 40 world leaders vowed to work together to “turbo-charge the adoption of clean technologies.” For example, in order to encourage long-term economic growth and job creation, the UK government is emphasizing investment in green, clean innovation.
Climate change and green initiatives have long been a source of interest for venture capitalists, but they are notoriously difficult to monetize. We’ll see innovators in sustainability and cleantech getting serious attention — and investment — as awareness of the importance of cleantech continues to increase in 2022.
#3 – Get ready for the fractional CFO to take off.
A foundation of financial management that gives precision, visibility, and efficiency is critical to getting Venture Capital. Investors want to know that there is a viable business behind a brilliant concept.
We may anticipate a surge in demand for fractional CFOs in 2022, as nimble start-ups hire financial specialists on a part-time, retainer, or contractual basis to support their growth and investment goals.
During the pandemic, the function of the CFO took on new meaning as businesses realized how critical it is to understand and manage their finances ahead of time. VCs searching for low-risk, high-reward prospects will be interested in organizations that exhibit a strategic approach to financial management.
#4 – Effective operations are unavoidable.
The pandemic highlighted many organizations’ operational shortcomings, including as supply chains, which included transporting food to supermarkets, consumer items to doorsteps, and chips to manufacturing factories.
In 2022, Venture Capitalists will consider operational resilience and efficiency when assessing firm viability. We’ll work with start-ups to bring a new wave of innovation to bear on today’s most pressing issues, such as traceability, sustainability, same-day delivery, and more decentralization.
These start-ups will stand out as the most appealing alternative for VCs as they pioneer increasingly smarter and more robust internal procedures. The pandemic’s lessons were hard-won, and firms who adapt will outperform their competitors.
#5 – Venture capitalists will look for competitor brands.
There is usually a lot of rivalry for money. It’s been due to a huge number of venture capital firms tracking the same trends and aiming to invest in the same businesses over the previous several years.
We should expect to see more pivoting away from the “obvious” in 2022, as well as investors looking for new markets and business ideas. Fintech and AI were probably the greatest standouts in 2021, but the following 12 months hold the promise of new enterprises challenging the status quo — and with fresh capital available to ride the tide of re-invention, it’s all to play for.
Businesses that can optimize the pressure points that held us back during the pandemic, such as supply networks, will see a lot more attention in 2022, as will those that question convention, whether it’s in how we buy, work, or manage our families.
Trends in venture capital
We witnessed a record-breaking number of new unicorns in 2021, as well as a seemingly exponential rate of investment. It’s fantastic news for entrepreneurs and emerging firms, but attracting venture capitalists is as tough as it’s ever been.
Fundraising is all about creating a narrative and offering investors soundbites that grab their attention, then putting your ideas through the due diligence process to make sure they hold up. So, keep an eye on the 2022 trends, but stick to the business basics. Finally, there is no alternative for a sound business strategy when it comes to seeking VC money.