What topics are front of mind for venture capitalists? Alpha VP uncovers the emerging technology sectors that early stage venture firms are most excited about in 2018 in a series of surveys with VC partners.
Where is capital being deployed?
AI-Machine Learning (40%): Almost half of the survey participants had selected AI-Machine Learning as a key area for capital deployment. Funds like Sky Capital are popping up that build almost their entire portfolio on investments with AI and ML capabilities. As Alpha is a growth stage, Series C+ investor, we noticed a big discrepancy here between early and late stage. We have not seen a prolific amount of AI-Machine Learning companies, but we expect that to change significantly over the next 2-4 years.
SaaS (29%): Our partners at Laconia Capital noted that we are “still early in transition to SaaS from legacy”. Over the past 10 years, VCs have been investing heavily in this space, and many growth stage opportunities continue to make headlines in the SaaS space.
Cybersecurity (23%): 1843 Capital astutely points out that this industry will continue to grow “because there will always be an active foe”.
Fintech (20%): “It won’t be one big player who disrupts, it will be a death by 1,000 cuts”, says PlugandPlay Ventures.
Crypto & Blockchain (16%): Blockchain is so exciting because the applications of the technology are seemingly endless. There has been a lot of focus on the crypto-currency aspect of blockchain, because the average consumer can invest into it and understand it (at a high level). There will be “major implications to supply chains, data security, and SaaS”, says Illuminate Ventures.
Which industries are prime areas for disruption?
Retail (35%): The changing retail environment is more than apparent, as Sky Ventures notes, “thousands of stores are closing as customers increasingly shop online.” For such a large industry, it makes sense that there is a lot of opportunity for investment and change with the ever-changing landscape. Alpha has seen early stage VCs pop up over the past few years who are focused exclusively focused on retail technology, which shows how big this opportunity could be.
Banks (34%): Resonance notes that the “micro-segmentation of markets and flattening transaction costs will crush banks”. Many VC investors come from entrepreneurial or finance backgrounds, so having been in the trenches and seeing the inefficiencies in the current system first hand, combined with ever-changing regulatory environment, there is a lot of room for investment here.
Auto (31%): This is a space us at Alpha have spent a lot of time investing in and researching. The automotive space and its components will continue to become privatized. Most of the industry is heavily fragmented, for example, CarMax, the largest player in the used car space, owns 2-3% of the market.
Insurance (22%): Village Capital shared that “entrants that survive highly-regulated industries threaten existing pricing and service models”.
Transportation (22%): This space, similar to the automotive space, will continue to be upended as new technologies develop and supply chain infrastructure changes. The logistics and supply chain space feed from this, as there are many inefficiencies in the transportation aspect of the market. From car-sharing to electric scooters, this industry has also attracted a lot of capital to continue to make consumer transportation more efficient.
Is initial public offering the way to go?
In terms of exit opportunities, by 2022, 45% of Alpha’s VC network expects to have 1-3 IPOs. 8% of Alpha’s partners, mostly larger funds later in their investing lifecycle, have more than 10 companies they expect to IPO within that 5-year timeline.