Of all the money invested in startups annually, $130 billion came from venture funds in 2018. This was the first year that that number crossed the $100 billion dollar line. Venture funds have also raised record amounts, and deal sizes have surged. United States firms alone have invested 4x more money into startups than they did 15 years ago.
Venture capitalism is changing, and the start of 2019 have made those shifts more apparent. For starters, the world venture capitalism tends to be different depending on who you ask—everyone from investors to startup founders have had different experiences, and the perception of what’s happening in the industry varies. Some people consider it a golden ticket to growth, while others believe today’s business climate means it’s better left avoided. But regardless of differing perception, one thing is clear: for emerging startups, VC funding is often the best (and only) option. Here’s how the world of venture capitalism is changing in 2019.
A Shift in Power Change
One of the first changes many have noted in venture capitalism is the slow but sure shift in power change. “With the large majority of VC returns coming from a small number of deals and more startup capital on the table, the power dynamic is shifting,” says Miruna Girtu, who specializes in researching and writing on the startup ecosystem. “Increasingly, we hear of startups picking their VCs rather than the other way around.”
More Differentiation Among VCs
With a slight shift in power change noted, venture capitalists are continuously looking for ways to differentiate themselves in a business sphere where the amount of VCs in the startup world is surging. With so much competitive pressure, venture capitalists are always looking for unique ways to tips the odds in their portfolio’s favor.
“Today, venture capitalists need to have more than just capital,” says Lee Jacobs, a former partner at AngelList. “With so many other firms on the hunt, it’s important to distinguish your model and approach. Today’s VCs need to think about what makes their firms valuable and original; ask yourself, what can you bring to the table—besides capital—that others VCs cannot?”
There ae several ways VCs can set themselves apart from their competition, and some of those methodolgies were outline at a panel called, “The Shifting Funding Landscape.” Here are a few notable ways VCs are carving a unique approach:
- Using thesis-based investing, which analyzes how speficifc trends or industries will evolve over longer periods of time, and matching potential investments to ensure they align with their thesis model
- Forming agencies to provide functional and operational expertise to their investments. By offering value-add services, VCs are able to attract more startups with a bigger batch of benefits
- Investing in scouts who keep their eyes and ears open for the best potential startup investments
To aid the process of discovering the companies most likely to yield a high ROI, some VC firms have gone the extra mile to design in-house software. For example, InReach Ventures, a Europe-based VC, designed an internal proprietary tool called DIG. DIG uses data aggregation, workflow management, and automated proactive outreach to increase the efficiency of their sourcing efforts.
“We have been in business for only 3 years, therefore, there’s still a lot to prove,” Roberto Bonanzinga and Karolina Kukielka, investors at InReach, told Forbes. “However, we have had some interesting validations of our unique model. For example, Shopify acquired our portfolio company Oberlo last year. When we invested in Oberlo, very few people knew that the company existed and we found them thanks to our unique data-driven approach.”
Motherbrain is another data-driven tool employed by EQT Ventures. It was designed to filter out the noise of the VC world and track and prioritize leads. According to its Investment Lead, David Fogel, this allowed them to make faster investment decisions.
A Team of Mentors & Support
Some VC firms are beginning to operate much like a long-term accelerator. This is because, to accelerate the growth of their companies, they’re bringing in a diverse team of startup specialists to help guide their investments. These specialist range in talent, offering everything from everything marketing support to product design and business intelligence.
One London-based fund called Forward Partners has conducted research to prove that this approach to helping startups grow has helped their portfolio of 50+ companies excel. According to them, by helping their startups with the right guidance and operational support, their portfolio companies are 4x more likely to reach Series A with 55% higher valuation. Those services are also offered at one-third of the typical costs.