Feb 18, 2022
Importance of Venture Capital
Venture Capital (V.C.) is a subcategory of private equity (P.E.), in which venture capitalists invest in new enterprises-startups to help them grow their businesses. These investors gain significant shares of the company, participate in the decision-making process, and provide technical-managerial experience, network access, and other support to help them succeed.
Venture capital is gaining popularity because it gives investors above-average profits while also assisting in the growth of technology. In recent years, venture capital investment activities have increased significantly in countries with favorable legislative frameworks and industries with higher levels of innovation.
Venture Capital Investment Trends
The V.C. market is now expanding due to the increased number of startups and increased venture capital investments from mutual funds and banking organizations. In addition, rising investment activities in various sector verticals, including healthcare, biotechnology, agriculture, and media and entertainment, are bolstering the market growth. Furthermore, venture capitalists use algorithms and machine learning (MI) to discover firms with higher growth potential to make better investment selections. However, the global spread of the coronavirus disease (COVID-19) and its cascading effects on businesses adversely affected venture capital growth in many countries. As a result, many organizations and their operational activities faced a slowdown. Hence, venture capitalists are also adjusting their strategies to cope up with the quickly shifting market conditions. With near normalcy and new standards, the industry is back on track and expected to grow faster.
The most dominant developing trend is investing in innovations and novel business models. High-rise sectors have been at the center stage and attracting significant investment from venture capitalists Canada . The United States, Canada, Australia, the Netherlands, Switzerland, Israel, India, France, Germany, the United Kingdom, Brazil, and Mexico, got the most investment recently. Both startups and scaleups have been focusing on implementing innovative business models in the new normal, and venture capitalists anticipate that innovation will continue to be a dominant force.
Sectors that attract the most V.C.
Venture capital, or money contributed by investors to startups and small enterprises with long-term growth potential, is widely regarded as "good capital." It encourages long-term investment and innovation, but not all industries can attract enough of it. The United States leads the world in venture capital investment, with an estimated $58.8 billion invested. With $25.9 billion, the internet industry in the U.S. had got the largest share of V.C. investments in the first quarter of the previous year (2021).
Other leading sectors in terms of investment were healthcare, computer hardware and services, and mobile and telecommunications.
The software sector received 36.2 percent of V.C. funding in the United States, while biotechnology received 17.3 percent. With 9.5 percent, media and entertainment completed the top three. Information technology services, medical devices and equipment, and industrial energy are other areas of growth and innovation. Financial services, consumer items, and telecommunications have lower investment levels than Information technology and Med-Tech. Pharmaceuticals, Biotechnology, Consumer Goods, Energy, and Entertainment have also emerged as prominent sectors for venture capitalists. Phone-based apps are among the most valuable startups globally, with many relying on venture capital backing to expand globally.
Market Size of Venture Capital
As per the projection made by the International Market Analysis Research and Consulting (IMARC) Group, in 2021, the worldwide venture capital investment market was valued at US$ 211.3 billion. According to the Group, the market would reach US$ 584.4 billion by 2027, with a CAGR of 20.1 percent from 2022 to 2027. North America continues to lead in terms of V.C. market size- the continent had finalized 6,400 investment deals globally in 2020. Though lagged in terms of investment size and sales compared to North America, Asia-Pacific and Europe emerged as key markets for venture capital firms.
As per KPMG Report that tracked the V.C. investment globally, during Q1’22, the V.C. investments witnessed spread over different geographies outside the U.S. However, the U.S. continued to lead. Companies from eleven different countries raised over $500 million in funding rounds during the quarter, including the US, France, India, China, the UK, Germany, Estonia, Turkey, Finland, Singapore, and Canada.
The largest financing rounds in Q1'22 were diverse, spanning a range of industries from health-tech and energy to Fin-tech, e-commerce, and Cybersecurity. It is interesting to note that the top 10 deals globally are spread across seven different countries.
Venture Capital Firms: Investing in Ideas
Accel, Andreessen Horowitz, Benchmark, Bessemer Venture Partners, First Round Capital L.L.C., Founders Fund L.L.C., G.G.V. Management L.L.C., Index Ventures, Sequoia Capital Operations L.L.C., Bain Capital Venture, R.R.E. Ventures, T.C.V., Greycroft, Canaan Partners, General Catalyst, Khosla Ventures, Kleiner Perkins, and Union Square Ventures L.L.C. are leading venture capital firms of the U.S. Silicon Valley, California (U.S.) based V.C. firms such as Horowitz back bold entrepreneurs building the future through technology. Balderton Capital (London-UK) is Europe’s leading venture firm focused exclusively on technology companies founded in Europe. Established in 2012, J.C. Team Capital is a venture capital firm in Canada that invests in seed funding for startups and a series of funding rounds in Canada and many other countries across the globe. As capital partners, its approach is to build high-growth businesses- founded on the bedrock of inventive and futuristic ideas.
With many taking an interest in cutting-edge technologies and infrastructure software enterprises, these venture capital firms have their sights set squarely on the future and are passionate about bringing transformative ideas to the global market.
Canada is witnessing a ‘Venture Explosion.’
Venture Capital Firms in Canada have taken a considerable lead in creating a new ecosystem driven by high-growth sectors. The Venture capital investment boom in Canada is continuing, with a surge in megadeals. If it is an exaggeration to say that "Canada is in a venture explosion,” Canadian startups in 2021 raised more than double their 2020 totals. The trend continued in 2021 as well, and Canadian startups raised $6.3 billion across 414 deals. V.C.'s investment in Canada remained very strong in Q1’22 too.
In Canada, the Cybersecurity space leads the pack as 1Password topped the list with the highest deal of the quarter. Fintech, E-Commerce, and Life Sciences were not behind; Koho (Fintech) received $166 million, Shoplazza (E-Commerce) got $150 million, and Ventus Therapeutics (Drug Discovery) raised an investment of $140 million, according to KPMG Report. The country also witnessed Edu-tech startup Paper getting venture capital investments worth $270 million.
The broad mix of sectors that attracted over $100 million in investment deals during Q1’21 highlights the incredible depth of Canada’s startup community and the growing strength of its V.C. market. Canadian startups are rapidly developing and scaling, drawing higher transaction sizes and an increasing number of international venture capitalists.
The Way Forward
Presently for Canada and other countries as well, Cybersecurity is a major challenge. Hence, this space is expected to see a very large V.C. investment in the coming quarters. in the future, global investors and Venture Capital firms will eagerly wait for a resolution to the Russia-Ukraine war. As the money raised must be spent, a very large appetite of startups and innovators for funds is expected to maintain V.C. investment reasonably stable over the next quarters. Cybersecurity, Fintech, Health-tech, and New Age I.T. tools like A.I., as well as alternative energy, are projected to be hot investment sectors across much of the region.
The Q1 F.Y. 22-23 shows a lot of positivity right now in the global V.C. space, and if the COVID-19 crisis is managed well, this positive sentiment will continue to dominate North America, Asia-Pacific, and European Markets. V.C. investment is expected to attain a higher stage of advancement in terms of market expansion and deals. The industry can witness V.C. investments picking up in less developed regions of the world, including in places like Africa, the Middle East, and South America.