Future of venture capital: 4 trends changing VC world

By Vital Laptenok, general partner at F1V

Global venture capital funding hit $25.2 billion in August 2022, 52% down year over year. The main driver of this decline is, of course, the financial market crash.

Unable to raise as much money as in 2021, startups are forced to reduce staff, suspend hiring, and cut their product development budgets.

But it’s not all that gloomy.

Companies do close funding rounds, it’s just investors are now more careful with whom they put their money in. And this extra frugality is changing the way VCs operate — perhaps, for the better.

This year is shaping other trends too: investment funds now spend more time on building startup communities, they start investing in people for a cut in their profits, and are readying themselves for a Robinhood-like change in VC.

Data-driven decisions

Shock content: PitchBook research shows only 38% of VCs make their investment decisions after studying startups’ data. Instead, these investors rely on their personal network and intuition.

The year 2022 will surely change these statistics. In fact, funds have already started to use more data analytics tools to source startups and make decisions. Some of them are even AI-driven.

Venture firms like Correlation Ventures, Deep Knowledge Ventures, and Lighter Capital have been using this approach for several years, and many more will follow suit in the near future. As soon as it happens, the industry will become fairer and more objective.

Startup communities around VCs

More VCs have started building communities around their funds — and this is another trend.

The VC industry isn’t about investing and waiting for an exit anymore. Funds build real partnership with portfolio startups, helping them grow and introducing them to each other. This builds a community of strong entrepreneurs who develop together.

Communication between investors and founders isn’t limited to boring emails and becomes more valuable, increasing engagement on both sides.

There is an exchange of expertise and knowledge between members of the community. Non-competing founders, business experts, and investors can share working strategies and help each other avoid mistakes.

It’s a strong competitive edge for any investment fund, that’s why leading funds like True Ventures, Norwest, Atomico, and First Round Capital have adopted this approach.

Robinhood for VC industry

Since the Robinhood app changed the stock market, making it easier for people to invest in stock, there was no doubt a similar format would soon appear in the venture industry. In the future, more and more people will have an opportunity to invest in the next Facebook.

In fact, Robinhood-like platforms already exist in VC. American company Cadre, for example, allows small investors to put money in institutional-level real estate. British platform Seedrs, in turn, lets individual investors finance more than 250 startups, including fintech giant Revolut.

Startup investing is still largely available to only a narrow community of venture capitalists and angels. But this will change.

Investing in individuals — not companies

Not all businesses can survive a crisis. Their founders, however, always move on. In fact, they get stronger, learn from mistakes and then launching more successful startups. That's why investing in individuals will definitely be a trend in the post-2022 future.

Here’s a vivid example of this trend: The Liberman brothers, serial entrepreneurs Daniil and David, have already launched a platform called Humanism. It allows people to invest in individuals, receiving in return a portion of their profits.

According to them, only 5% of the companies ever created have become unicorns. However, the percentage of founders who have crossed this 1-billion mark with their firm is more significant. It’s 11%.

In 2021, along with Slow Ventures and a16z crypto fund partner Sriram Krishnan, the Liberman brothers invested $1.7 million in YouTube blogger Marina Mogilko. In return, she will be paying them 5% of all her future profits for 30 years. There’s a high chance that more VCs will follow suit.

Summary

Instead of intuition and personal network, VCs will more often rely on data and analytics, when making an investment decision. Machine learning and artificial intelligence will help them.
Investors will spend more time building relationships with their portfolio startups and creating a community around them.
Venture investing will open up for the public when there are more Robinhood-like platforms in this sphere. Anyone will be able to invest in the next Facebook.
Instead of just investing in startups, VCs will also back promising individuals for an interest in their future profits.

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