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Notable Venture Capital Trends

Last year, venture companies raised more cash than ever before. Many in the industry predict that momentum will continue.

According to financial data and software company PitchBook Data Inc., 2020 was terrible for countless small businesses and start-ups, but the venture industry raised $ 73.6 billion in the United States in 2020 and in 2018. It surpassed the record high of $ 68.1 billion. It tracks the industry. This activity was partially reinforced by capital-rich investors, thanks to the prosperity of the initial public offering market and the strong demand for innovation and digital acceleration in the pandemic.

This is what venture capitalists and entrepreneurs see as the biggest trend to look for in the coming year.

Another year’s strength

Venture capitalists are forecasting another great year of financing in the wake of a healthy IPO market and favorable regulatory changes that open the door to new investments.

“Venture capital returns in 2020 were impressive compared to public market returns,” said Stephen N. Kaplan, a prominent service professor of entrepreneurship and finance Neubauer at the University of Chicago Booth Business School. Says.

In the future, we expect more money to flow into venture capital from funds, pension funds and wealthy families who may have been more cautious about this type of investment in the past.

Allison Baumgates, general partner of Semper Virens Venture Capital in San Francisco, said some regulatory changes could lead to more money flowing into private equity and venture capital.

In June, the US Department of Labor issued an information letter stating that under limited circumstances, defined contribution pension plans such as 401 (k) allow indirect investment in private-equity funds. In August, the US Securities and Exchange Commission amended the definition of accredited investors to give more room to the types of people who can legally invest in venture capital. Third development: Amendment of the Volcker Rule, which previously prevented banks from investing in venture capital funds.

“This will increase the demand for early-stage private sector investment,” Gates said.

Have vs don’t have

Established venture capital firms are expected to bring most of their money into the market, according to some industry watchers.

In the last few years, established companies that have launched four or more investment funds have been more successful in attracting capital than start-ups that have launched three or less. By 2020, established companies accounted for nearly 75% of the total capital raised for venture funds. According to PitchBook, this is the largest portion of the group’s total holdings since 2012.

Meanwhile, some industry watchers have stated that more money is flowing into the ecosystem, suggesting that it may be distributed to more participants.

Possible pipeline problems

There are some concerns about how young companies pay fares for this year’s funding. Despite the surge in the early days of the pandemic, PitchBook estimates that investors closed nearly as many angel and seed deals in 2020 as in 2019.

Michael Chow, Research Director of the National Venture Capital Association, said that 2021 could slow seed and angel stage funding, leading to pipeline issues.

“A pool of new companies that, without seed and angel investment, could, of course, receive additional funding in price rounds from investors focused on growth, maturity and early and late investments. Will be less, “says Mr. Chow says.

Comprehensive issues

Some experts remain concerned about the ability of minority-led and women-led companies to raise money from venture capitalists. According to Gates, the pipeline of potential founders isn’t yet where it’s needed, as tech companies have been collaborating to encourage women and minorities in the last few years. Investors and fund managers are more likely than ever to seek proven founders, which can make things even more difficult for companies headed by new women and minorities in the industry, she says.

Indeed, women-founded companies set a record in terms of transaction value in 2020, but according to PitchBook, it has fewer transactions than it did a year ago. According to PitchBook, the female founder raised $ 22.1 billion in 2418 transactions, compared to $ 21.8 billion in 2951 transactions in 2019. Overall, nearly a quarter of all VC transactions were directed to companies with at least one female founder.

SPAC activity

The activities of special purpose acquisition companies (SPACs) designed to go public without going through a traditional IPO process broke the record in 2020, compared to 2019 when 53 SPACs raised $ 11.1 billion. 250 companies have raised a total of $ 75.1 billion. According to PitchBook. SPACs are usually formed by executives who have specific expertise and intend to do business in that area.

As the number of SPACs grows exponentially, you will have more opportunities to buy. This could be a precursor to 2021 for venture funds seeking exit strategies, Dr. Kaplan said.

It remains to be seen if SPAC will remain here as a serious alternative to IPOs. Mr. Chow said that 2021 will continue to test the model if, for example, revenue is lower than the traditional IPO model and some SPACs come out empty-handed in search of acquisitions in the face of fierce competition. ..

Notable sector

There are several areas where venture capitalists and entrepreneurs will get hot in 2021.

We continue to have the opportunity to invest in up-and-coming technology companies such as life sciences and biotechnology companies. Venture capitalist Gates has also found many opportunities for mental health-focused technology to reduce healthcare delivery costs and benefit gig workers. In addition, she says, there will be a wave of new workforce development tools focused on re-skilling people who are unemployed or replaced by technology during a pandemic.

Given President Biden’s commitment to implement the changes needed to minimize the effects of global warming, other sectors of note include machine learning and AI, and clean technology.

Marc Suidan, M & A leader in PwC’s technology, media and telecom, sees regulations tightening. This could mean that solutions are coming to market in areas such as cybersecurity, privacy, antitrust, trade and taxation.

E99 Ventures Partner Janisteira spends more money on society-focused ventures from non-traditional investors, such as private companies that manage money for wealthy families and the wealthy. I’m expecting that.

“Previously there was only one way to raise money,” says Taylor. “You have to go to Silicon Valley and look for money there. Today, there are many other types of funds to meet the needs of the founders. The founders leave their old models behind and send startups to the world. You need to find an alternative way for. “

Winokur Munk is a writer in West Orange, NJ. Her contact information is reports@wsj.com.

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Notable Venture Capital Trends

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