Feb 18, 2022
Startups and Scaleups Investment: Emerging Trends
Funding is a monetary investment in a business for product creation, manufacturing, expansion, sales & marketing, office space, and inventory. Many firms prefer not to seek outside finance and instead rely solely on their founders for funding (to prevent debts and equity dilution). Most Startups and scaleups, on the other hand, do raise money, especially as they expand and scale their operations. Seed money, also known as seed-stage funding, is a very early investment aimed at assisting a company's growth and ability to generate its capital. Seed money, also known as seed capital, is a type of investment in which investors receive an equity stake in return for their money. The investors might also be the creators of their own company, using their savings as startup money. This is known as bootstrapping. Amid COVID-19 innovations triggered the investment in Startups and scaleups and post COVID-19 period, Canada startup investment would get a further boost. Venture capitalists (VC), Angel investors, and investors for startups and scaleups are keeping a close eye on several high-growth sectors driven by innovations globally.
Venture Capital Firms: Enabling Growth stage
Venture capital (VC) is a type of private equity investment made by venture capital organisations or funds in startups, early-stage, and developing companies with high growth potential. Venture capital firms or funds invest in these early-stage businesses in exchange for equity, or a portion of the company. Venture capitalists take on the risk of investing in high-risk businesses in the hopes of seeing some of their investments prosper. While all sources contribute funding to new businesses, venture capitalists are often professional investors that invest in a diverse portfolio of new businesses and provide hands-on coaching as well as utilise their professional networks to assist the new company.
Unlike angel investing, equity crowdfunding, and other seed funding options, venture capital is attractive to start-up companies that have little or no operating history, are too small to raise cash on the public markets, and have not yet received a bank loan or completed a debt offering. In exchange for taking on a high level of risk by investing in smaller and early-stage businesses, famous venture capitalists typically gain a significant stake in the firm's ownership. Unicorn businesses, such as Uber, Airbnb, Flipkart, Xiaomi, and Didi Chuxing, are highly valued startups in which venture capitalists contribute more than just funding. They also frequently provide strategic guidance to the firm's management on its business model and marketing strategy. Regardless of whether a business succeeds or fails, lenders have a legal right to interest and capital payback. The venture capitalist's return as a stakeholder is determined by the company's development and profitability.
Angel Investors: The Big Promoters
Like private equity and Venture Capital, Angel investors are also playing a critical role in providing momentum to startup investment globally. Angel investors are high net individuals who prefer to invest their money in startups and scaleups. Along with VC firms, they have also emerged as key players in promoting innovative businesses. Over the years, angel investors have preferred to invest in tech-driven innovative businesses. Risk management differentiates them from VC firms. With highly trained professionals and efficient processes, VC firms majorly invest other persons’ money in startups and scaleups with huge growth potential, thereby minimizing the risks.
Global Innovations & Investments
As the world becomes more open to new investment opportunities, so does the pace of these activities. Startups and scaleups are now taking private equity, venture capital, angel funding, and other investment modalities more seriously and aggressively. Globally, investment began to pick up in Q1 of 2021, and it saw a large increase in Q2 of 2021. The United States, Australia, the Netherlands, Switzerland, Israel, India, France, Germany, the United Kingdom, Brazil, Mexico, and Canada recently received the most investment. In the new normal, both startups and scaleups have been focusing on adopting innovative business models, and investors expect innovation to be a dominant force in the future. Investing in innovations and novel business models is the most dominating emerging trend.
Internet of Things (IoT), Blockchain, Big Data, and Artificial Intelligence (AI) have all witnessed major increases in popularity and innovation in recent years. As a result, venture capitalists are pouring money into cutting-edge technologies such as artificial intelligence and the Internet of Things. According to data, AI firms received $9.3 billion in funding from venture capitalists in 2018. Global Founders Capital, based in Berlin, was launched in 2013. It has invested in firms in the retail, fintech, internet, information technology, and communication sectors, making it a global participant in the venture capital industry.
Investment companies now gear up to tap the huge potential that exists in high-growth sectors. Fintech, Health-Tech, Edu-tech, E-Commerce, IoT, Biotechnology, and Entertainment-Tech among others emerged as leaders. Venture capitalists or angel investors invest in a startup or a large corporation only after thoroughly evaluating the business model, growth potential, and plans. In Q2'21, fintech experienced a record quarter of investment across the Americas, including the United States and Latin America, garnering hundreds of millions of dollars in capital rounds.
Canada: Taking a Lead
VC Firms and other startup investors of Canada have taken a considerable lead in creating a new ecosystem driven by high growth sectors. Investment in both startups and scaleups surged enormously in the last two years. VC firms and angel investors of Ontario are majorly focusing on healthcare and biotech. They are instrumental in creating a large number of unicorns in Canada and the rest of the Americas. Investors in Canada have shown deep interests in fintech, biotech and new-age IT tools such as Artificial Intelligence (AI). In the previous few quarters, there has been a surge in investment in AI-based businesses, indicating a new trend in which Canadian companies have begun to capitalise on their ability to commercialise AI breakthroughs.
Canadian startups in 2021 raised more than double their 2020 totals. A famous startup investor reportedly said, "Canada is in a venture explosion.” Therefore, outcomes are “unprecedented” for the country. In the first half of 2021 only, Canadian startups raised $6.3 billion across 414 deals. The trend continues.
Indian Startup Ecosystem: Attracting Investors
PE/VC Investments in India grew at a CAGR of 19% from USD 8.4 billion in 2011 to USD 47.6 in 2020. In the last decade (2011-2020), Indian startups attracted a cumulative value of investment worth USD 232.4 billion. After the very successful year 2021 in terms of startup investment, the early months of 2022 were also promising. By the first week of March 2022, 11 Indian startups made it to the list of Unicorns. It is evident that at a time when the world was battling the effects of the COVID-19 pandemic, Indian startups had shown great growth and turned crisis into an opportunity. A report by PwC reveals that over 50 Indian startups could join the unicorn club by the end of 2022. In 2021, 44 companies attained a valuation of $1 billion-Unicorn status. Over $10 billion was invested in the Indian startup ecosystem in the fourth quarter of 2021. The numbers are expected to rise again in 2022.
By doubling the number of unicorns in 2021, India's Economic Survey says the country has surpassed the United Kingdom as the third-largest country in terms of numbers of unicorns, behind the United States and China. The United States brought 487 new unicorns to the list, while China added 301 new enterprises. Now India has 83 companies with a cumulative valuation of $277.77 billion as of January 14, 2022. Fintech, health-tech, ed-tech, agri-tech, pharmaceuticals, technology, and e-commerce, among other sectors, have gained traction, and these segments will continue to be among the most attractive investment opportunities in the future.