Critical Overview:
The venture capital-backed technology companies have played a significant role in driving the economic recovery since the onset of Covid-19 two years ago, exceeding all expectations. The VC ecosystem is increasingly looking like the last remaining source of dynamism in a global economy bereft of new ideas. In 2021, record levels of investment were seen in the European venture community. The increasing reliance on the innovation, efficiency, and problem-solving capabilities delivered by VC-backed technology suggests that the pace of investment will step up in the year ahead.
Net Zero through technology:
Industrial technology’s role in mitigating climate change is still underestimated, according to John Lervik, Founder of industrial dataops provider Cognite. Deploying digital software tools is now essential both to compete and to comply with overriding sustainability targets. More broadly, advanced analytics, AI, business intelligence, and cloud tools will all play a vital role in combating environmental concerns in 2022, contributing to sustainable industry practices through increased transparency, production efficiency, and improved energy management. Data is becoming the key environmental decision-maker as more companies embrace automation and digitization.
Crypto regulation takes shape:
Crypto skepticism is still engrained amongst some investors. However, increased adoption has forced the hand of regulators, banks, and international infrastructure providers. In 2021, increased deployment through crypto assets embedded into products and services, offering greater accessibility for consumers, was observed. Adoption in 2022 will be further enhanced by Government-driven structured regulatory processes and increased lobbying by emerging key players in the crypto economy. Ultimately, regulation is much needed by all parties to defeat the skeptics and send crypto mainstream.
Therapy and psychedelics support:
With the world currently facing an extreme shortage of health clinicians, many of whom themselves are struggling with burnout, digital platforms will continue to take centre stage. Psychedelics will offer patients additional treatment options in 2022, and technology will play a substantial role in the deployment and delivery of psychedelic-focused therapy. While existing technologies are still very nascent, as venture investment increases, they will widen access to treatment for millions of people who are currently being neglected.
Meta hype:
The topic of ‘meta’ has propelled to most innovation agendas. However, meta development cycles are much longer than originally anticipated, further hardware innovation is still needed, and, consequently, application areas are still limited. Big Tech will try to own the metaverse, but it will face a significant challenge due to changing power structures, IP/content rights, and the acceleration of the decentralization movement, especially the greater use of the blockchain.
Globalization in reverse?
In 2021, a wave of extreme weather, combined with shortages of workers and cargo space, created a perfect storm for the global supply chain, adding further pressure onto organizations to rethink and remodel the way they manufacture, sell and ship their produce. The supply chain is on the verge of a revolution, with businesses placing less emphasis on cutting costs and more on building the capacity and resilience to weather disruption. This will likely mean companies bringing their operations closer to home. In a Bank of America study, 75% of companies said they were reshoring operations to their home bases or neighboring countries.
The YOLO economy:
The pandemic has forced many people to take stock of their lives and review their frenetic lifestyles. The YOLO ethic centers individuals in their entrepreneurial pursuit of life improvement, whether that’s greater job satisfaction, better work/life balance, or simply the chance to do more of the things that interest them. This trend was one of the driving factors behind The Great Resignation in 2021. In 2022, we can expect to see more holistic changes in how people live and the emergence of the YOLO economy. It’s good news for the startup community.
The Rise of Family Offices: An Analysis of Venture Investment Trends
Family offices are becoming a prominent force in the private investment landscape, particularly in the field of venture capital. With many tech companies choosing to remain private for longer periods, the proportion of venture investment coming from family offices is growing at an exponential rate. It is worth noting that nearly 70% of all family offices have been established since the year 2000, with half of them emerging post-financial crisis in 2008. Rob Diamon, founder of Diamond Wealth, estimates that there is currently $10 trillion of wealth amongst family offices, a figure that is predicted to increase to $65 trillion over the next 15 years.
Despite their growing significance, many family offices are still in the process of learning how to navigate the venture capital arena. They must determine whether and when to invest directly, how best to staff their operations, and how to gain access to preferred partner funds. Given the vast amount of wealth and their focus on private markets, family offices could potentially disrupt the private investment landscape in 2022. The question is how.
The Invasion of Europe and Early Stage Investment Renaissance
As a market becomes more saturated or competitive, investors tend to look for new territories in search of investment opportunities and talent. In recent times, US investors have begun to participate in more than one-quarter of all investment rounds in Europe, with over 600 US VCs investing in 2021, as reported by Atomico. Furthermore, US participation in European $100m+ rounds increased by 200%, and 95% of all transactions of $250m+ had US/Asian participation.
As a result, ownership of Europe’s fast-growth businesses is increasingly being handed over to non-European investors, which is giving entrepreneurs greater choice and volume of investment. However, this trend is also skewing the investment landscape towards later stage investment cases and more mature companies. European investors are experiencing a lack of institutional support to compete, and they face a significant challenge in 2022 to compete against the deep-pocketed and machine-like investment procedures of Tiger, Coatue, Softbank, Insight, and others.
There is a growing belief that more European investors will shift their focus towards early-stage investing, which has strong fundamentals in Europe. There is a significant inflow of talent into the entrepreneurial sector, capital recycling by serial founders, and a continuous flow of exits. Addressing the future unicorn pipeline will be a critical challenge for European investors in 2022.
Macro Volatility Will Remain
The world remains beset by conflicts, unstable geopolitical conditions, trade disputes, energy security, and environmental concerns, all of which have significant impacts on economic conditions such as inflation. Inflationary movements have led to increased interest rates, and in the next 12 months, higher interest rates are expected to increase the cost of capital, negatively affecting IPOs, later stage dealmaking, and M&A activity. In 2021, there was a record number of IPOs, partly fueled by SPACs, but two-thirds of these IPOs dropped in value post-listing, and this trend is likely to continue into 2022. This could contribute to an early stage investment renaissance.
The Continued Role of Venture Investment
Predicting future trends involves analyzing current societal trends, identifying technology challenges, and identifying inefficiencies or bottlenecks that provide opportunities for innovation through the smart deployment of technology. It is difficult to predict the extent to which fear or misunderstanding will impede progress, leading to slow adoption cycles or a “do nothing” mentality.
Venture capital remains a uniquely positioned model for tackling major societal issues that face us today, emphasizing rapid, transformational growth, and scalability. Despite resistance, the global scale of these challenges necessitates the dynamism of venture capital.
