Appealing Technologies Drive Growth: Healthy Pace of VC Investment across the Americas

The US economy has performed better in recent months than most people anticipated or even understood. Omicron increased infection rates to a record level, yet the economic data made little difference. Business executives and policymakers may still face challenges from inflation and related issues like convoluted supply chains, but overall, the US economy is doing well. Investment for startups in the Americas remained relatively strong in Q1 and Q2 2022. According to KPMG total fundraising in the Americas had already surpassed 2021’s record high of $151 billion, with $156 billion in fundraising so far. Although the US obtained the vast majority of venture capital funding in the area, Canada and Brazil also experienced successful investment quarters, as shown by the fact that 1Password, a Canadian company, raised $650 million, and Neon, a Brazilian company, raised $300 million. The US continued to dominate in VC investment.

The Recovery

The pandemic boosted the growth of labour productivity and, as a result, pushed the adoption of technology. In earlier Deloitte projections, trend productivity was estimated to be less than 1%. However, productivity growth has continued to expand at a startlingly high rate of roughly 2% for the four quarters leading up to December 2021 during the pandemic's recovery. Many of the long-term problems facing the US economy, such as paying social security, will probably become much simpler to tackle if productivity growth stays high. Investment in startups has been encouraged by high earnings. Due to the pandemic, investments were switched from construction to equipment and information products. However, the desire to invest indicates that startup funding companies are remarkably upbeat about the future. Profits for the company are excellent. Profits were 21% higher in Q3 2021 than they were before the pandemic. When the pandemic initially began in March 2020, many firms had good cause to expect considerably worse than that. As people who left their jobs during the pandemic are returning, the labour participation rate has begun to increase. The unemployment rate has already returned to its pre-recession level.

Venture Capital Investments in Early 2022

The US's VC investment in Q1'22 was down from the record-high reached in Q4'21, but it was still far larger than in any quarter before 2021. The two biggest transactions for the quarter were an investment of $3 billion by Altos Labs and an investment of $935 million by the logistics firm Flexport. The continued interruptions to the global supply chain, along with the geopolitical unpredictability caused by the conflict between the US and China and Russia and Ukraine, have revived the focus on the domestic availability of certain goods needed to support US economic growth. Semiconductors are one such topic that is receiving focus. Intel declared that a semiconductor manufacturing facility would be built in the US in Q1 of 2022. Given the attention being paid to the startup financing sectors, it is anticipated that during the upcoming quarters, more VC funding will flow to the semiconductor companies. Additionally, VC investors are likely to show more interest in and investment in other essential support or input technologies.

The Appealing Technologies

Following the COVID-19 pandemic, US VC investors have continued to provide large funding to health and biotech startups. Drug discovery startup Eikon Therapeutics raised $517 million in the first quarter of 22. VC investment in the field has been diverse, encompassing everything from drug discovery and medical equipment to digital healthcare models and software to assist healthcare professionals. Digital mechanisms to improve care are anticipated to be a topic of interest to investors going forward, as both medical professionals and consumers of digital health services have grown more accustomed to virtual models of care over the previous two years. In the US, investment in digital and blockchain technology persisted, with Bahamas-based FTX raising $400 million in Q1'22. Only four months after its formation, US-based Aptos raised $200 million throughout the quarter on a $1 billion valuation. Startup investors’ interest is also developing in alternate fields where blockchain can be applied, in addition to bitcoin platforms and solutions. Even though interest in NFTs has considerably decreased, some people are still curious about whether they may be used as a system for event ticketing to cut down on fraud and scalping.

Agriculture technology (Agtech) attracted a lot of interest from VC investors in the US during Q1'22, with investments ranging from cell-cultured seafood business Finless Foods' $34 million Series B round to indoor vertical farming startup Plenty's $400 million Series E deal. In the upcoming quarters, it is anticipated that investments in Agtech would increase due to the rising importance of food security and sustainability in the US and around the world.

Valuation Game

The market is experiencing a great deal of uncertainty, and valuations are beginning to decline. This is starting to raise concerns about the possibility that some unicorns will not be able to raise new capital at or above their previous valuations, which has largely been unheard of over the last two years. Some unicorns might have to think about down rounds if the situation worsens. Pre-money valuations and deal sizes at the early stage reached all-time highs in Q'1. The data first suggests that early-stage firms are somewhat more protected against market volatility than those at later stages. The average late-stage pre-money valuation and the top-decile percentage fell from the highs of 2021 as tech firms bore the weight of the recent market turbulence. In Q'1, the typical public listing valuation dropped to $993.1 million. Although the amount is still high by historical standards, it is nearly equivalent to 2021's $2.8 billion.

Trends in Canada and Brazil

In Q1'22, VC investment in Canada was exceptionally strong. Among other significant deals, the nation saw edtech Paper raise $270 million, fintech Koho raised $166 million and followed closely by e-commerce platform Shoplazza which raised $150 million. Drug discovery firm Ventus Therapeutics managed to get a $140 million VC investment. In yet another appealing technologies space a battery recycling firm Lithion Recycling received $125 million. The largest deal of the quarter was fetched by 1Password (Ontario-based software company AgileBits Inc.). The wide range of industries that attracted deals worth $100 million or more during the first quarter of 21 demonstrates the extraordinary breadth of the Canadian startup community and the expanding strength of its VC market. Rapid expansion and growth of Canadian firms drew higher deal sizes and an increasing variety of VC investors.

After two record-breaking quarters, VC investment in Brazil slowed down a bit in Q1 2022 as VC investors grew more circumspect about their bets in the face of rising inflation and interest rates as well as the looming possibility of a federal election in the second half of 2022. However, VC investment in Brazil continued to be relatively significant compared to historical patterns despite the dip from Q3 and Q4'21. Additionally, venture capital funds continued to pay attention to the nation; during the quarter, Bamboo Capital Partners partnered with the Brazilian VC firm KPTL to develop possibilities centred on technology and social transformation.

The Way Forward

With appealing technologies and innovation as growth drivers, startups in these spaces are expected to remain attractive to VC investors across the Americas. High rates of inflation, rapidly rising interest rates, geopolitical uncertainty, and deepening concerns about a global recession may affect investment sentiments in the immediate term. But, overall startup funding looks positive in the next quarters too. Venture Capital investment across the Americas may show some caution with respect to their investment decisions, but technologies and innovations with an eye on profitability and sustainability would help them to conquer the uncertainty in the market.