By Fernando Berrocal
During the pandemic years, venture capital (VC) investing in the U.S. has more than doubled on a year-to-year basis. In 2021, it reached an outstanding $329 billion; approximately twice 2020’s estimation ($116 billion). Such growth - almost 200% - is generally unheard of in any industry. Clearly this is a promising time for investors and entrepreneurs alike.
Most investment analysts predict a new high by the end of 2022–opening the door to new startup ideas and fast-growth ventures around the world. This happens as VC investors are looking for new opportunities in the global market. Global technological trends such as remote and hybrid work, sustainability, digitalization across all the business sectors and sizes, and other digital paradigms remain very attractive to both investors and entrepreneurs. Investors are always looking for a significant return on their investment. In these upcoming years, that is more than guaranteed in the world of startups and technological businesses.
CrunchBase, a significant website destination for readers to uncover the latest industry trends, conducted important research in which they assessed worldwide monthly investments until January 2022. In that research, it was shown that in November 2021 VC investment reached a high point. However, in the year 2022, the figure remains high and climbing compared to levels before the Pandemic. So, as we enter the second quarter of 2022, what can we anticipate from the VC market. More specifically: what can new entrepreneurs do to get a financing round?
Artificial intelligence-based startups are still on top. In upcoming years, the artificial intelligence (AI) market will keep expanding and developing. With a worldwide market value of $387 billion in the current year (2022) and an expected compound annual growth rate (CAGR) of 20.1 percent over the following decade, it’s no wonder that VC investors want to get their hands on AI-based startups. Since the outbreak of COVID-19, automation has become an essential part of any type of business. As global work-from-home trends continue to grow (and show no signs of slowing down,) COVID-19's digital transition is propelling many industries into the digital era; a landscape where AI is central.
Investments in AI-based businesses are expected to rise at a faster rate in 2022, according to a new analysis by the Organization for Economic Co-operation and Development (OECD). Their findings state: "General investment trends tend to foreshadow VC trends, signaling that the AI business is growing...the median investment size is increasing, there are more extremely big investments and proportionately fewer investment agreements in the early phases of financing."
Indeed, annual worldwide investment in AI-powered businesses has increased from only $3 billion in the year 2012 to $75 billion by the end of 2020. Business experts believe that this will continue to rise as AI technology will be more integrated into all elements of the business sector, ranging from financial management to even the operation of warehouse and supply chains in all types of businesses.
Fractional Chief Financial Officers (CFOs) are in high demand. As VC investment patterns keep rising, so does the demand for fractional CFOs. Businesses continue to rely on financial consultants (often on a daily basis) to support their investment strategies. Following the pandemic, the position of CFOs in the remote startup industry rose sharply, and will keep doing so. With new data suggesting that 80% of entrepreneurial enterprises fail during their first year of operation, many business owners are dedicating funds towards investing in fractional CFOs to increase their financial stability and attract VCs.
Sustainable investment will take center stage: Clean technology is expected to attract significant investment. Cleantech has risen to prominence once again as a venture fund led by different billionaires around the globe that invests in many areas. For example, they invest in several battery and electric-car businesses as green energy investment explodes based on new sustainable trends. As a result, the VC community is beginning to pay attention; sustainable investment is becoming increasingly popular (and will continue to do so). As a result, investment has increased, intending to boost the performance of enterprise development with a market capitalization of less than $1 billion that tries to strengthen global sustainable relations and eco-friendly activities.
Is crowdfunding positioned to take the lead? According to new research, less than 5% of business startups currently rely on VC funding throughout their early phases of development. Could we see a drop in VC investment as an alternative source of funding? Crowdfunding and crypto-based investments are becoming increasingly popular. In fact, in the wake of the current startup boom, the crowdfunding investment maximum was lifted from just over $1 million to $5 million in 2020. The crowdfunding market is predicted to develop at a 15 percent CAGR year over year, catching up to VC's reign as the monarch of investors. While VCs are more concerned with quality investment than quantity, the market isn't overly concerned, but investors should keep an eye out for even more potential sources of funding this year as new players enter the investing game.
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