The global VC investment market has been rapidly growing during the last decade, and the 2014–2019 period has seen strong double-digit growth. While the market growth in 2020 has been significantly impacted by the Covid-19 crisis, the prospects for the VC industry are positive. Today, we will cover some of the top trends in venture capital that will define 2021. We will talk about the VC industry as a whole as well as sectors that are likely to be the most interesting for VC investors in the coming year. Let’s dive right into it!
Fewer deals, larger rounds
2020 was the year of turbulence and uncertainty, and no wonder that investors — just like us, individuals — wanted to secure as much reliability and confidence as possible in all this chaos. How could they do that? By investing in companies that have already reached key milestones and have been showing positive traction for some time. It means that although early-stage investments (pre-seed and seed funding) were still in place in 2020, they gained less attention from established funds than late-stage companies. The latter, though, managed to raise enormous rounds, although there were far fewer deals.
In November 2020, late-stage VC investment surpassed $92 billion — a new high — which continued a decade-long increase in late-stage funding activity. This flood of venture capital to large startups is expected to continue in 2021, especially given the growth of nontraditional participation in the industry.
The rise of early-stage VC funds
While big names in the VC industry are eager to pour money into established late-stage companies, there is another trend in the venture capital industry — a growing number of early-stage funds with bold ambitions. Their founders understand that a lot of great companies were founded during crises — Slack, Uber, Airbnb, and Venmo to name a few — and the time of uncertainty may well be the time of future success for those using the opportunity and available resources wisely. This trend in venture capital of investing in early-stage prospective companies is likely to continue in 2021, although startups that want to get funded still have to prove their idea with data and at least some traction.
More gender balance in venture capital
Recent years have seen a growing number of efforts towards gender equality in various sectors — and venture capital is no exception. Today, women account for only 17% of partners at VC firms while female-founded startups are undervalued (on average, they are worth just 20% of men’s). But we understand that it shouldn’t and wouldn’t be like that. More and more females create their VC funds as well as found prospective startups — and the notion that men are more suitable for entrepreneurship gradually vanishes. Thus, one of the top trends in venture capital in 2021 is the pursuit of gender balance.
Venture capitalists will be keenly watching several areas
As we already discussed in one of our recent posts, Covid-19 has not treated all the sectors of the economy in the same way. Companies in industries such as offline retail or hospitality were forced to either innovate and transform their business models or be wiped out. Likely, there were also sectors of the economy that not only managed to survive but also thrived in times of the global crisis. Those became the target sectors for venture capital, and some of them will continue to be in the focus in 2021.
1. Health care. 2020 had shown us that when there is a pandemic, there is a lot of money in the healthcare industry. Many startups working in the industry got an unexpected push from Covid-19, especially those focused on remote care and patient management. When staying away from people became a must, digital solutions helped many healthcare facilities to stay afloat as well as many people to get the necessary care without leaving the comfort of their homes. No wonder investors poured vast amounts of money into the industry, especially into those startups that help tackle or at least weather the Covid-19 crisis. This venture capital trend is likely to continue in 2021 as although there are several vaccines in use, the pandemic is not yet over and health care startups keep their relevance.
2. Fintech. The industry has been on the rise during recent years as businesses and individuals turn to digitization. Fintech startups get lots of investments from both incumbent VC funds and newbies in the industry, and the trend is likely to continue in the years to come. Lots of attention will be paid to mobile banking, payments, and investment solutions.
3. Hybrid work. At the beginning of the global lockdown in spring 2020, the concept of remote work was surely gaining attention but also met a portion of skepticism and the notion of its short-termness. Then, when we understood that the pandemic would not be over soon, remote work became the new normal, and large companies like Microsoft, PayPal, Facebook, and Adobe announced their shift to the remote. While the pandemic will sooner or later be over, our stance on remote work has already changed — Twitter CEO Jack Dorsey even told the employees that they can work from home forever. While many employees will surely come back to their offices, a lot of others will gladly combine office work with the remote one. Consequently, one of the core trends in venture capital will be the focus on hybrid work — especially collaboration and productivity tools.
4. Transportation and infrastructure. Eco-friendliness has become a global trend over recent years. But unfortunately, the current infrastructure in many countries cannot allow for wise and eco-friendly transportation. Thus, a lot of effort is expected to be made in pursuit of better mobility solutions — flexible, lean, and sustainable. Moreover, another trend in venture capital is a high interest in autonomous driving solutions.
Even though there are bumps on the road like the global crisis, the venture capital industry will continue to grow in the coming year. The most prominent trends in venture capital in 2021 will be larger rounds but fewer deals, more gender equality, and an increasing number of early-stage funds. Moreover, investors will pay special attention to sectors that benefited from the pandemic — fintech, healthcare, and remote work. Infrastructure and transportation are likely to be in the focus as there is a need for developing better-working sustainable solutions.