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3 venture capital trends that will define the future of investing

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Venture capital trends shift and change as frequently as seed-series valuations and cryptocurrencies. Certain industries gain and lose popularity with VCs, economic shifts make deal sizes ebb and flow, and deal speed accelerates and slows. Some venture capital trends, however, have remained consistent and remain top of mind for leading investment firms.

An increased focus on automation and technology, a greater dependence on data, and a cultural spotlight on building more diverse teams are changing venture capital spaces for the better. 

Automation is changing how VCs manage deals

VCs are fueling the rise in technological innovation by fighting to be the first to invest in the next industry disruptor. The VC industry itself is still manually managed. Deals are done over dinners and handshakes. More recently though, faster moving, more efficient VC firms are digitizing and automating their notebooks and coffee calls. 

“Investors never really used a lot of tech. The tech you were competing with in venture was coffee at the Creamery in SoMa and a notebook." Said Jules Maltz, General Partner at IVP.

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Networks are getting larger, more information is available on the elements of those networks, and managing those pieces manually is no longer possible. Improving operational efficiencies is a priority for firms that want to keep pace with the competition. 

Whether deal cycles last days or months, automatically capturing all of a firm’s contact and deal data expands access to its most valuable asset: its collective professional network. These technologies include:

  • Automated, intelligent CRM platforms
  • Business intelligence and analytics platforms
  • Project and task management tools

More VCs continue to rely on technology to manage data entry and management, so they can focus on building better relationships and find, manage, and close more opportunities.

Data isn’t just for finance teams anymore

In addition to automation, another major trend in venture capital is focusing on data-driven decision-making. “The most common use cases for leveraging data are financial modeling (20%), refining investment thesis (19%) and sourcing investments (19%),” according to Pitchbook’s Venture Capital Data Usage Survey.

Financial modeling has always required complex quantitative analysis, but VC firms equipped with more relationship data points are analyzing data to become smarter investors. One key trend among leading VC funds is using analytics to identify patterns in previous investment successes.

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Teams can combine firmographic data points from Pitchbook or Crunchbase alongside network and interaction data from their own platform (details like other founders in their collective network or previously successful companies in an industry they’re exploring). 

The growing data trend gives small and global firms alike the opportunity to gain detailed insights into the specific people and places they’re interested in investing and networking with. McKinsey highlights that part of the trend toward digitization, artificial intelligence, relationship intelligence, and business intelligence come from decreasing costs and rapidly improving return on investment (ROI). It makes sense that VC teams would gravitate toward spending less to make more.

Numbers don't lie, diverse teams are outperforming traditional VC firms

58% of partners at VC firms are white men, according to a survey conducted by Equal Ventures. But VC firms with at least one female founder generate 9.7% more profitable exits. And diverse founding teams outperform all-white teams by 30%.  So the numbers don’t lie, diversity pays off. 

“​It would feel a bit hypocritical if we went out…with an all-male team and said that one of our core values is gender equality…for our investments.” Said Sid Jawahar, Managing Partner at New York-based Swiftarc Ventures. More diverse teams lead to greater outcomes, and with growing social pressures, more VC firms are committing to diversifying their teams and the leadership teams of their portfolio companies. 

Progress for diverse representation balance seems to be moving forward, but more firms will have to truly commit to making a change. Making teams more diverse has been a slow crawl, and this extends to portfolio diversity as well (the number of female unicorn founders has actually decreased.) Increasing diversity among VC partners provides more access to capital for more diverse founders, and as more teams rally for greater success, diversity will gain greater visibility and attention.

A trend toward a faster, leaner venture capital industry

Venture Capital trends point toward improved efficiency, smarter decisions, greater access to capital, and even more success for those willing to lean into them. As trends in investment patterns or company times come and go, these 3 trends appear to be here to stay. VCs preparing to stay ahead of the competition have to adopt sooner than later.

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