Arleo Dordar, Managing Director & Founder at Venture Plans.
When John Q. Public shuts his eyes and imagines venture capital, he likely sees something like Shark Tank: a crew of rich folks with cash to throw at whatever pitch they like best.
But in the real world of venture capital—the shark-infested waters my clients swim in every day—the picture is often far more complex. And if you want to raise capital for your enterprise or emerging business, you need to understand the evolving state of play.
In this article, I sketch the current trends and opportunities in venture capital so that you can begin to strategize how to fund the next stage in your company’s growth.
The Lay Of The Land: Current Trends In Venture Capital
The word on many venture capitalists’ minds is impact. While traditional sectors like tech and healthcare continue to attract a huge proportion of funding, investors are paying close attention to ventures that deliver not just financial returns but also social and environmental benefits. Clean energy startups, sustainable agriculture firms, deliberately inclusive companies—these types of businesses promise to make the world a better place even as they bring investors returns.
Of course, there’s always the specter of recession. While the economy has been improving, investors have been chastened by several years of volatility. That said, I have found that many venture capital firms right now are particularly interested in businesses that are agile and resilient—unburdened on account of low overhead and able to respond well to adversity.
Shifting Preferences In Venture Capital Investment
Increasingly sophisticated investors are devoting more and more toward the team that runs a particular business, the sector it addresses, and the locale in/toward which it operates. Healthtech, fintech and greentech ventures are all in the limelight right now, specifically in Southeast Asia, where venture capital investment is exploding.
Again we see a strong preference for impact by way of ESG investment—environmental, social and governance. If you’re interested in raising capital, be prepared to show venture capitalists precisely what you’re doing to create a positive impact.
Opportunities For Enterprises To Raise Capital
Circumstances are evolving, but the venture capital landscape remains a treasure trove if you know where to look. For instance, niche markets such as biotech, agritech and artificial intelligence (AI) are steadily gaining traction. Enterprises in these newfangled areas can attract interest through old-fashioned fundraising. I recommend demonstrating these tried and true tactics that venture capital typically wants to see:
• Strong, experienced leadership.
• Unique, innovative value propositions.
• An established and growing customer base.
• Clear market and customer validation.
• Growing revenue and solid financials.
• Risk awareness and mitigation.
• Clear timelines and strategic fit.
The Rise And Growth Of Alternative Financing Models
An important trend in this space actually exists outside the traditional venture capital firm: alternative funding models such as crowdfunding and corporate venture capital.
Crowdfunding democratizes startup investment by allowing businesses to raise small amounts of money from large numbers of investors. The value in this model lies not just in the money raised but also in the connection crowdfunding builds between companies and customers. Crowdfunders take ownership, becoming early adopters with a vested interest in providing meaningful feedback and contributing to a winning narrative.
Corporate venture capital may well be the opposite of crowdfunding. This model—in which corporations invest in startups—offers access to resources, expertise and markets that would otherwise be limited. But it also vests control (formally and informally) in corporate investors, which means their vision will inevitably take precedence over yours.
Honorable Mention: I’m also seeing entrepreneurs attract more and more funding from pooled investment vehicles, which are similar to crowdfunding in that they aggregate funds from a group of investors. Family office syndication offers the same dynamic on a larger scale, with multiple offices pooling investment as opposed to individuals.
Future Outlook And Predictions
What’s next for venture capital? The future is ripe with possibilities. Experts are both predicting and calling for a continued focus on impact investing. Technological and organizational innovation will likely continue to push the boundaries in this space, creating new investment opportunities that we can scarcely imagine at this point in time.
Beyond ESG, keep an eye on new opportunities in decentralized finance (DeFi), which could revolutionize financial services. I’ll be watching the gig economy, as well, while venture capital firms fund innovative models that take advantage of individuals’ desires to fit their work to their personal lives.
Key Considerations For Enterprises And Emerging Businesses
Raising capital is no walk in the park. It takes strategic thinking and meticulous preparation. Your business may be on the right side of the trends mentioned above, but don’t let that give you a false sense of assurance.
In our current climate, the fundamentals apply more than ever:
• Build a strong business case. Investors need to see and hear a compelling vision backed by solid data before they commit their capital. Be sure to highlight your market potential, competitive advantage and path to profitability.
• Do your due diligence. Prepare for tough questions by asking them of yourself first. Be sure your financials, legal documentation and operational outlook are in pristine condition before you get into the room with an investor.
• Demonstrate your growth potential. Venture capitalists invest in companies that are poised to make a splash. Be prepared to show how rapidly you can enter the market, take command and grow exponentially.
Conclusion
The venture capital landscape is dynamic right now and full of opportunities for enterprises and emerging businesses. The future is bright—especially for those who are on the cutting edge and are committed to making this world a better place for others.
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