Investing in startups is essentially the art of trend spotting.
Venture capitalists place bets on the distant future – like decades into the future. Most VCs consider themselves contrarian thinkers and according to famed Benchmark VC and entrepreneur Andy Rachleff, in order to be successful you must be non-consensus and right.
In reality, there appears to be some consensus among investors, which shows up in the form of venture capital trends. In the last decade (2010s), for example, mobile app-based services like Uber, Lyft, DoorDash, Robinhood, and more were certainly a trend in both business model and venture capital investments.
So what is trending among VCs today? We took a look at the top ten VC firms deploying the most capital in early-stage startups (removing those that do not invest in Series A or earlier) to uncover some of the trends likely to continue in 2021 and beyond. Combined these ten firms have made more than 10,000 total venture investments:
- New Enterprise Associates
- Intel Capital
- Insight Partners
- Accel Partners
- Norwest Venture Partners
- Battery Ventures
- Menlo Ventures
- Sequoia Capital
- Polaris Partners
- Andreesen Horowitz
Concentration: Industry Lines Blur VC Focus
We’ve all heard the buzzwords that are commonly used to describe the future: ai, bio, cloud, and more. As each of these industries has evolved individually, there is a growing trend in the application of these technologies in combination, including:
- Artificial intelligence
- Cloud computing
Individually, these industries have seen massive venture capital investments over the last few years. Last year, for example, venture capital in biotech totaled more than $14 billion globally. Artificial intelligence attracted even more capital in 2019, raising more than $18 billion.
Investments by the top VCs are showing clear overlap in these fields. More than 10% of the Series A or earlier investments made in 2020 were for companies applying artificial intelligence to biotech, and another 10% were applying artificial intelligence to cloud computing operations.
AI + Biotech
Here are a few companies that have recently raised or are currently raising venture capital at the intersection of biotech and AI:
12/7/20 | Andreesen Horowitz | Series A | $20 million
Deepcell is using AI-enabled cell isolation techniques to enable better diagnostics, drug development, and more. For example, Deepcell has been able to classify cells that occur in only one in a billion as well as study clusters of tumor microenvironments, providing opportunities for selective cell therapies.
12/2/20 | Rock Springs Capital | Series A | $52 million
Genesis is currently using the founding team’s deep technical expertise to build neural networks and other proprietary AI algorithms to enhance drug discovery. The company was founded by Evan Feinberg, a Phd in biophysics and the inventor of PotentialNet, a deep learning model used to predict molecular properties for drug discovery.
Pending | EquityNet | Equity Round | $10 million
HiPaas is using artificial intelligence to make hospital operations and insurance logistics more efficient by leveraging data to uncover waste and opportunities for efficiency. They are also creating AI models to help bolster surgery success rates, including a model currently enabling City of Hope Medical Center to monitor sepsis in bone marrow transplant patients.
Devops + Cloud = CloudOps
As the enterprise continues its mass migration to the cloud, new businesses are emerging to service the opportunities brought by the new environment.
Tools to make teams of cloud developers more productive are garnering massive interest and investment from the venture capital industry. Here are a few companies that have recently raised or are currently raising venture capital at the intersection of devops and cloud computing:
10/6/2020 | Sequoia Capital | Series Seed | $2.3 million
Deploying apps into production requires the successful management of environment specific variables, keys, and other secretive information. Doppler provides development teams with a tool to easily store, protect, and share these secret keys.
12/9/20 | Index Ventures | Series A | $100 million
Security is a top priority for those businesses building on top of the cloud, and Wiz is building a tool to give those businesses visibility to identify vulnerabilities in their cloud infrastructure. Headquartered in Tel Aviv, Israel, the startup is being led by a former cloud security engineer at Microsoft.
12/2/20 | Sequoia Capital | Series Seed | $2.2 million
The product and mission for Okay is to make engineering teams more productive and engaged. Okay provides dashboards and analytics tools to make sure developers are fully utilized, meetings aren’t time-consuming, and other metrics for measuring productivity and product development.
Pending | EquityNet | Equity Round | $10 million
Mobile app security is an important factor most modern businesses must prioritize because mobile apps are becoming almost as ubiquitous as websites. Quixxi’s suite of mobile security tools provides detection, monitoring, and testing driven development products.
Foreign Investments: Beyond the Valley
Historically, the heart of Venture Capital has been Silicon Valley; Sand Hill Road more specifically. This is the road that Steve Jobs frequented, Elon Musk had to hitchhike down, and many more lesser known entrepreneurs would source funding for their businesses. Today, however, venture capitalists and entrepreneurs are more geographically diverse.
Although the valley is still a huge epicenter for VC investments, more and more are investing in startup hubs around the world. Tony Faddell, the former Apple designer and founder of Nest, for example, actually created a venture fund with the value proposition, “Silicon Valley doesn’t have a monopoly on good ideas.”
The top three trending locales for venture capital in the U.S but outside of Silicon Valley are:
- New York City
The top three trending locales for venture capital outside of the U.S. are:
- United Kingdom
More than 18% of the 100 most recent investments made by the top ten VC firms were for companies located outside of the United States. We believe this trend towards international venture investments will continue to increase.
Diverse Investments: Female Founders Flourishing
Lack of diversity in venture capital and wide funding gaps for underrepresented groups has been a long standing issue in the VC ecosystem but in 2019, more than 86% of investors reported investing in female founders an important or top priority.
Although the funding continues to flow more heavily towards white male founders, the trend is certainly beginning to gain momentum. From December 2017 to December 2020 the top 10 VC firms alone have invested more than $3.8 billion into companies founded and/or operated by women and people of color.
How You Can Capitalize on VC Trends
Since we began this article with an Andy Rachleff quote, we will end with an equally important quote about the importance of following a growing market trend: “When a great team addresses a lousy market, the market wins; when a lousy team addresses a great market, the market wins.”
Essentially, a growing market is more predictive of a company’s success than the leadership team. This is why identifying market trends from the collective brains of successful venture capitalists can help guide your own investment thesis.
You don’t have to be a professional venture capitalist to take advantage of early opportunities in these growing markets and businesses. EquityNet is the best place for accredited investors to source investments in private companies with more than 10,000 companies spanning numerous markets and regions.