If you don't know much about venture capital besides the fact that it involves lots of money, you're not alone. But VC plays an important role in our society, and it's becoming more prominent as it takes new forms. You're never too old to learn, right?
These industry insiders gave us a lesson in the noteworthy trends shaping the future of venture capital. Here's what they had to say:
1. Carolina Abenante, Founder of NYIAX
“VCs need to become much more flexible in their offering terms. The advent for start-ups to seek alternative investment from qualified investors is due to both the myopia of VC companies, which they believe fit in their portfolio and highly inflexible terms for founders. Usually, you will receive terms for a preferred convertible with high levers for not meeting unattainable initial goals and high redemption rights to the preferred, meaning you cannot seek any other funding than from your primary VC. VCs need to learn to have parity in control when they enter, and I hope that is the next step.”
2. Kyle Asman, Partner at BX3 Capital
“This has been the year of unicorns finally going public: Uber and Lyft have gotten rather large exits, and potentially there are a few more in the pipeline.
The trend in VC has been a focus on larger and larger rounds, which is good for the unicorns and soon to be publics, but bad for the early stage companies who need the capital to grow the most. I am hoping we see VCs recommitting to investing in companies at their earliest stages, and providing capital to companies to get them through their toughest periods of growth. On the technology side for VCs, we have a seen a number of awesome advancements in data rooms, and streamlining the due-diligence
3. Dave Knox, Strategic Advisor at Predicting the Turn
“Two trends that I’m paying particular attention to are A.) the shift of investments towards new geographies, and B.) a rise of models that fit a different profile of companies. On the first, you are seeing a rise of venture capital in new geographies both in the US and internationally. Its one I see particularly here in the Midwest as investors back startups founded by industry subject matter experts that are often disrupting traditional Fortune 500 industries. Second, a new type of entrepreneur is emerging that wants to build a company vs a company that is only “subsidized” by venture capital. That requires venture to approach these companies in a different way.”
4. Keren Moynihan, CEO of Boss Insights
“VC in 2019 is getting more diverse. Investors like Arlan Hamilton are seeing greater returns by investing in underestimated entrepreneurs. A lot of decisions in investment are made by gut. Investor's are human too though, and when you don't have data backing up your decisions, bias seeps in. That means there's an opportunity to profit by working with underestimated founders.”
5. Oleg Gredil, Assistant Professor at the Tulane University A. B. Freeman School of Business
“Harvestings previously made deals is to remain a great priority for many
top VCs amidst growing pressure from their fund investors as economy is moving along the cycle. The challenge of productively deploying freshly raised billions is, of course, present too. Yet some of the recent themes,
including automation/AI-technologies and fin/med-tech seem to be indeed very capital intensive”.
6. Jessica David, Director of Marketing at SeventySix Capital
“Athletes are shaping the future of venture capital. Global entrepreneurship is on the rise and athletes are leveraging their social and financial capital off the field or court. Our partner and former MLB superstar Ryan Howard believes that athletes have the power to help maximize a startup’s
potential. It’s about learning how to contribute to a startup’s success in a meaningful way while bridging the gap between athletes, entrepreneurs, and investors.”
7. Sara Batterby, founder of Equity Capital Collective
“Venture is seeking to broaden its mandate but seems slow to recognize and leverage the value creation in manufacturing, consumer packaged goods and more complex systems solutions in sectors such as food, healthcare and education. Ultimately, diversity in investing requires diversity in venture teams and for whatever reason, venture capital is on a very slow learning curve with that. The emphasis on this, however, will continue to apply pressure for change and I think venture capital will become more diverse, in both its makeup and investment strategies over time.”
8. Michael Mildenberger, CEO of seriesOne
“Cannabis: The cannabis industry has become an investable sector. In October, Canada became the first major world economy to legalize the substance and many states in the U.S. are implementing legalization as well. This will garner intense media focus since cannabis is a sexy story.
However, in terms of its economic importance, it will still represent a
small sliver of VC activity compared to tech companies that are
transforming major segments of our economy such as healthcare and finance.”
9. Alex Song, CEO and Co-Founder of Innovation Department
“We’ve entered an era where innovative growth tactics and the development of
proprietary assets are taking precedence over a reliance on traditional VC backing. Rather than continuing to fall into the trap of opting for fast revenue growth in an effort to drive up valuation – something that happens as a natural byproduct of leaning on VC funding – new companies are shifting their focus to measured growth in an effort to prioritize long-term success and a more sustainable, scalable business model. These new approaches to growth that are emerging as a result – e.g. adopting a “holding company” model for multiple brands to obtain shared cost efficiencies, or diversifying distribution by partnering with wholesalers that allow for more cost-efficient customer acquisition – ultimately allow new companies and brands to focus on profitability without the level of need that there once was for VC.
These trends don’t necessarily make VC obsolete, but they do make it so that VC money becomes something that brands can – not must – accept down the line once they’ve already reached a point of profitability.”
10. Tim Schigel, Managing Partner of Refinery Ventures
“One of the biggest trends you can expect to continue in the VC industry is dependency on AI technology to source deals, manage portfolio companies and handle internal operations.
VC firms are beginning to take advantage of AI technologies to better source companies and investments. VC firms no longer need to depend on their “gut” when making an investment. They can now run a multitude of analysis, giving firms deep insight into which companies are essential investments. AI technology also opens up firms to looking outside of their neighborhood. Firms now have the ability to evaluate companies from all over the world.”
11. Dennis Shirshikov, Finance Specialist at Fit Small Business
“2019 will be an interesting year for venture capital. Deal sizes are growing larger and there are many quickly maturing companies that need more funding. However, there is also a decline in the overall appetite for earlier funding rounds. This is giving rise to more angel investment and investor syndicates at these stages.”
12. Viktor Viktorov, Founder of REINNO
“The number of sources of capital is dramatically increasing. The barriers for international investors are decreasing day by day with more options to buy equity over the Internet without the need for intermediaries. Institutional investors who used to only get involved through funds now make more direct investments into promising companies. Unaccredited investors join early stage markets to support the startups they believe in. With the bigger amount of capital available on the market, new companies might prefer to skip pitching to VCs, so there is pressure on the latter to innovate and stay competitive.”
13. Elizabeth Avery, Founder/Managing Director Kalorama Capital
“Since 2014, seed stage investing has been eclipsed by later stage investing.. This trend continues in 2019. As many venture funds reach $1B, they tend to focus on growth stage investing. Why is this? It is a simple matter of mathematics. Although a rare seed stage VC fund investment has reached $10M, $1.5M is more typical. At that rate, even a fund of only $400M would require a large staff to undertake due diligence, serve on boards and manage those investments for up to 10 years. As a result, early stage start-up's face greater challenges in obtaining venture funding.”
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