Industry Trends & Current Innovations Transforming The World Of Venture Capital

Having completed his MS in Mechanical Engineering from University of Wisconsin-Milwaukee, Sanjay boasts of a 26-years long career during which he was associated with companies such as MetLife, Merrill Lynch, Covansys, and Softvision, and has even incepted NEE and Silicon Road Ideation Labs.

Over the last few years, the Venture Capital investments have transformed significantly, from VCs funding small groups of startups, to availability and infusion of funds through new entrants in the market, to fewer calculated investments for better and more predictable exits. The self-contained startup ecosystems that provide startups with funding, incubation space, mentoring and connections to industry are playing the role of a catalyst. It is evident that the ecosystem building is all about working with a number of startups who are actively seeking connections & funding from the VC and angel communities. To keep-up with the investment world, it is important to understand the VC landscape, language, and investment trends.

As per a Bain & Company report, the Indian VC industry invested about $10 billion in 2019. This was driven by large deal volumes and large deal sizes coming mainly from four key sectors – B2B Commerce (which accounted for 35 percent of the total investments), Consumer Technology, SaaS Software and Fintech. Increased investments also occurred in EdTech, FoodTech, and HealthTech.

Despite huge capital deployments during 2019, it turned-out that the end of 2019 saw about $7 billion in cash reserves still available for investments – seemingly a positive indicator for continued investments to continue

in 2020. Although the fund-raising outlook for 2020 looks promising, thanks to the current COVID 19 global issue, VCs are likely to exercise caution and go with a wait and watch approach.

Although the public markets are showing high levels of volatility due to the current COVID 19 situation, VCs probably will see this as a promising time to be investing; more so because venture investments are generally isolated from public markets, and investing in good visionary and opportunistic projects will result in enormous value creation regardless of market cycles. Additionally, the current situation will allow VCs to deploy their capital at lower valuations while remaining extremely selective about their investments.

A few trends that the VCs will look into during the current times include reinvesting into winners in their current portfolio companies, opting for startups that have demonstrated capital & operational efficiencies, startups that are operating on long runways, betting big on investments by external lead investors & co-investing, rationalizing the valuation process & seeking lower valuation terms, and crafting structured investment terms to protect the investors and their interests. Globally, from an investment standpoint, the other trends that the VCs are closely considering and upbeat about are:
• Solving real world problems - the impact startups
• Plant-based meat alternatives
• Innovations in B2B applications
• Augmented Reality, Virtual Reality & Mixed Reality
• Applications for automating the Modern Economy
• Data and AI; Artificial Intelligence for enterprise applications
• AI for safeguarding against destructive intrusions
• Electric Vehicles • Productization of Machine Learning
• Elevated valuations will come from startups who have a product strategy and access to unique or proprietary data sets

Final Thoughts In 2020, VCs will be selective in picking startups, and will expect startups to bring-in business model efficiencies to manage burn and growth. Startups should expect lower valuations and need to stay focused on their fundamentals, i.e., customer retention and cash flow. Startups that focus on gaining near term visibility and staying profitable will win in this new world.