Venture capital deal flow is directly impacted by times of uncertainty. The past couple of years have been no exception. As the pandemic hit, there was a drastic decline in seed-stage deals. Yet, there’s since been a rapid rebound. During the first half of 2021, 250 new companies reached unicorn status—more than the number of unicorns born during any of the previous nine full years!
Venture growth has often been attributed to economic rebound following global events like the 2008 financial crisis. Deena Shakir, president of Lux Capital, attributes recent momentum in investment activity to the fact that venture capitalists are expanding their traditional opportunities by branching out of their traditional comfort zones to chase new investments. This, in turn, has led to stiff competition and unprecedented valuations.
With Shakir’s projections in mind, here are three major trends that are transforming deal flow today and how your team can best manage the changes with technology.
Expanding digital healthcare
Given the inextricable link between the COVID-19 pandemic and health concerns, it’s no surprise that one of the leading venture trends right now is digital healthcare. Because of the rapid acceleration in deal velocity and the growth of deal size in the space, it’s important for firms in the digital health space to be more efficient than ever.
A combination of positive consumer perception and tangible investment in telehealth contributed to incredible growth in telehealth of 38 times its pre-COVID-19 baseline. According to Rock Health, this growth has resulted in all-time-high venture capital dollars flowing to US digital health companies. Over $14B was invested in 2020 across 440 deals and a record $6.7 billion to U.S. digital health startups in the first three months of 2021.
According to Rock Health, digital health is facing a pivotal moment. They’ve outlined the emerging dynamics that are reshaping digital health investment in 2021:
- Mega Deals: 25 $100M digital health deals accounted for two-thirds of Q1 funding
- Other Stage Deal Sizes: Series A, B, and C deal sizes also have trended up through Q1
- Rise of SPACs: US SPACs (across all industries) raised more capital in Q1 than in all of 2020. In 2021, digital health SPAC activity has been strong, with the announcement and/or closure of 10 digital health SPAC deals including ones involving companies like Talkspace and 23andMe.
For firms hoping to capitalize on the growth of telehealth, it’s easy to focus on the scale of $100M deals, but as smaller Series A, B, and C deals grow, it’s more valuable than ever to connect to make your team as efficient as possible.
Tracking potential investment opportunities with a venture capital CRM gives you the ability to analyze your relationship and deal management in real time. Turn that analysis into action by diving into which deals need attention and what steps need to be taken to stay on top of your next opportunity.
Increasing security for fintech
Numerous start-ups offer customized products and services that efficiently compete against traditional banks in speed, time, and convenience. Rising consumer expectations are pushing consumer-product companies and retail players to digitize, automate, and integrate outside solutions. By providing smart solutions, fintech has helped small businesses access financing through online platforms and offer more convenient online payment tools, but this has created a new need: heightened cybersecurity.
Cybersecurity is set to lead to continued growth in fintech, fuelled by the combination of the pandemic and the global trend in cybercrime forecasted to hit $6 trillion annually this year. The boom in this industry appears to be strengthening.
We’re just over halfway through 2021 and already the record-breaking $7.8 billion raised in 2020 by security companies has been surpassed. In regard to the current climate, Yanev Suissa, founder of SineWave Ventures, flags concerns with the current investment landscape. Suissa emphasizes a couple of areas that may be cause for concern for investment teams.
- Strategy: Investors are now offering huge sums of money in several companies early, and firms that are typically associated with later growth rounds are now contributing to Series A and B deals hoping they invest in a “winner”.
- Scale: We’re seeing investors invest in many niche offerings rather than revolutionary platforms. As Suissa explains, there are too many “whack-a-mole” solutions being funded. He adds, “We just don’t see a lot of revolutionary platforms out there right now.”
The increased traction in the cybersecurity investing world means it’s more important than ever to build a strong network of relationships your team can tap for an introduction. Having a foot in the door for a warm introduction can make the difference between reaching a contact today and closing a deal or tomorrow and missing a funding round. Tech-forward VC firms are relying more and more on relationship intelligence tools to keep them ahead of the curve by finding warm introductions fast.
Prioritizing impact investing
Long before the pandemic, venture capitalists were thinking about how they could make a positive social or environmental impact. According to Margot Brandenburg, senior program officer at the Ford Foundation and co-author of The Power of Impact Investing, the momentum pre-COVID is only expected to strengthen.
According to the Global Impact Investing Network (GIIN), global impact investing is projected to grow to $2 trillion by 2025. The rise of Corporate Venture Capital provides many examples of more corporations focusing on the impact space and ways in which this will impact investing across the board:
- The two-headed unicorn: VC investment into tech solutions that also address one or more of the 17 UN’s Sustainable Development Goals (SDG) has heated up. Tech solutions for issues such as the climate crisis or social inequality have seen a 280% increase in global VC investment from 2015 to 2020.
- Post-pandemic investing: Steven Schlenker, co-founder of DN Capital, recently announced a new $350M fund to help shape the post-pandemic world by investing in early-stage founders who are building technology that will take advantage of the social changes fueled by the pandemic. Schlenker says there are tech founders across the globe right now on critical missions to accelerate this recovery and help address the needs of the post-pandemic world.
Impact investing shouldn’t be an abstracted descriptor of an investment opportunity. Using a CRM to track specific details like what environmental or social causes a startup is working to address can help you track how or where your team is making a positive impact. You can also identify causes you would like to support and track that information directly alongside your current deal flow.
These three trends are accelerating deal velocity, increasing investing competition, and forcing VCs to make more informed decisions fast. As the nature of deal flow management changes (and continues to change), more teams are relying on modern CRM technology to enable them to close more quality deals faster.
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