Iterations of venture capital (VC) have existed since well before World War II. However, contrary to many antiquated financial practices, venture capital has had a mercurial past and continues to change and adapt to current markets. With unprecedented changes in terms of the climate and health situation around the world, VCs have had to take more factors into consideration than simply growth potential.
In 2022, we are witnessing an increasing climate crisis. Along with this, the economic and financial remnants of the pandemic remain while the global economy descends further into inflation cycles. All these economic indicators must inform and alter VCs and their decisions. As a result, we have also seen an emergence of specialized VCs that focus on individual sectors/markets or concentrate their investments with the aim of fulfilling certain goals. For example, Alliance Ventures is a collaborative effort between Mitsubishi, Renault, and Nissan to bolster innovation and cost efficiency. The group aims largely to support companies specializing in more sustainable and efficient battery technologies to improve the carbon emissions situation in all forms of transport.
The key trends in the current VC environment are likely to affect the way certain companies achieve growth. However, it remains to be seen whether these new trends will prove favourable or not.
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Top Venture Capital Trends in 2022
- Increase in Venture Debt
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Investment in Emissions Reducing Technologies
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Cryptocurrencies
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Crypto-Based Venture Capitalists
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Sustainable and ESG-based Investment
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New Manufacturing methods will Alleviate Supply Chain bottlenecks
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Cyber-Security Funding
Read More: Sustainability Tech Innovations that will power 2022
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Increase in Venture Debt
While venture capital has been the most popular way to kickstart a small business for a few decades now, the advent of the new age, rife with inflation and reluctant investors, has caused VCs to re-evaluate their options. As a result, global investment has seen strong tailwinds in the venture debt sector. This entails an investment in which the businesses incur debt rather than having to give up an equity position. With the increased uncertainty in the markets, investors have favoured earning a decided percentage of the loan amount rather than waiting on equity gains in the future.
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Investment in Emissions Reducing Technologies
As the state of climate change continues to change, it is becoming increasingly important for businesses to work against the level of greenhouse gas emissions. The ever-worsening situation has worked as an impetus for the rising demand for these technologies and businesses, making them a desirable investment for VCs. However, it is also important to note that this time-sensitive nature makes these investments highly volatile and risky as many technologies fail or are unable to find traction.
Aside from simply focusing on emissions reduction, many investors are looking at companies that concentrate on actively removing carbon from the atmosphere. For example, a company called CarbonCure technologies specializes in absorbing carbon dioxide from the atmosphere and injecting it into concrete to be used in construction. This technology could be revolutionary and has seen investment from the likes of funds owned or operated by Amazon, Mitsubishi, and Microsoft. With early-stage investments in a company like CarbonCure, VC funds stand to gain massive growth opportunities with the possibilities of government deals in such technologies. As a result, many are quick to question whether these VCs aim only at higher margin profits or at genuinely thwarting climate change and global warming. Yet, in the grand scheme of things, the motives of the VCs are irrelevant if these technologies work.
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Cryptocurrencies
In 2022, any conversation about large investments and the possibility of big gains must include Cryptocurrencies. Despite the apprehension of many traditional investors, Cryptocurrencies saw a big boom in the early stages of the year. While the market has seen more bearish trends now, Crypto has been the destination for large-scale wealth creation in 2021 and the early stages of 2022.
With the market seeing a dip in values of main coins like Ethereum and Bitcoin of over 70% and almost 60%, respectively (year to date), it seems like a strong investment opportunity to buy in low right now in the hopes of a full recovery. This also means that many other coins in the early development stages could bring massive yields as the rest of the large coins recoup their losses over the course of the next 6-12 months. While crypto might be somewhat more volatile and riskier, it seems like the place to be for venture capitalists and retail investors alike.
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Crypto-Based Venture Capitalists
As mentioned earlier, the crypto space saw big booms of late. Especially with the recent bull run, many smaller investors were able to make generational wealth by seeing which coins might have the most utility. As a result, there was also an influx of funds made by newer crypto investors who pool their resources and focus primarily on early-stage financing. This is a business of high-risk, high reward in a space that has remained relatively unsaturated in terms of VCs.
Furthermore, these funds (despite mainly consisting of young investors) come equipped with extremely well-informed partners when it comes to crypto. With this first-hand knowledge over the traditional VCs, they can invest in all different types of projects. These can range from new cryptocurrencies, blockchain utilizing technologies, and even non-fungible tokens (NFTs).
Read More: NFT Digital Art: The Technology that is Transforming Creativity
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Sustainable and ESG-Based Investment
Aside from the carbon emissions-reducing technology, VCs are also looking very closely at ESG sound investments. While many assume this to mean it is based completely on the environment, ESG also includes companies that ensure high labour standards, gender and racial diversity, anti-bribery and corruption principles, and many others. It is becoming increasingly popular for businesses to consider financial intangibles such as these to foster a stronger environment for growth while also encouraging investors.
However, many have - criticized ESG-based VCs and companies with claims that this idea is more of a method of virtue signalling than an attempt at improving workplaces and companies. Many believe that a lot of the ESG-leaning companies are disingenuous and aim more at public opinion than the inner workings of the business itself. With that being said, many argue this by insisting on the notion that their motives for investing or being ESG sounds are irrelevant as long as it works toward the common good.
With this working as a VC trend, we can hope to see improvements in the environment and the general state of offices globally. Although many have shown concerns about the basis of this philosophy, it will undoubtedly work to improve the situation everywhere.
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New Manufacturing methods will Alleviate Supply Chain bottlenecks
A major obstacle for many businesses trying to remain afloat during the pandemic was the massive supply chain bottlenecks that were faced all around the world. While this was largely because many people were unable to operate from their places of work, many saw this as an issue of labour. As a result, we have seen an influx in manufacturing and delivery solutions to help ease these issues.
Whether it is the further development of 3D printing technologies at massive scales or simply stronger logistics, new start-ups have aimed at combating all the issues that we were plagued with over the last two years. As a result, they have become revolutionary and, therefore, a very desirable investment for VCs.
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Cyber-Security Funding
After seeing companies like Nvidia and even governments like Costa Rica fall victim to ransomware attacks, everyone has begun to emphasize the importance of cyber-security. With every company being heavily tech-integrated, cyber-security has been integral for years now. However, with the current state of vulnerability, any firm with proprietary data or information that might be ransomed for money or used by competitors must ensure an unprecedented level of cyber security.
Therefore, the sector has grown very lucrative following the increased worry of attacks from individual hacker groups or even state-sponsored groups coming out of Russia. This means that VCs are investing in this sector at all stages as many scrambles to get in before equity value booms.
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