There was an article published at the end of December that I thought those in interested in the venture capital trends for 2010 might want to read. The article appeared on the VentureBeat site and was written by two partners at Grotech Ventures. It caught my eye as it discussed where money might be flowing in 2010.
A quick summary of the article:
Social Media. The authors say that social media will be a hot sector. While there are still many questions about how to monetize the conversational and real-time nature of social media, the authors expects social media to move towards profitability in 2010.
Cloud Computing. The authors expect money to continue to flow to the cloud in 2010. The financial value of cost savings, infrastructure savings and productivity enhancement will drive continued investment.
Prosumer Technologies. The authors say this space will fizzle in 2010 and we will see a re-separation of consumer and professional devices, having a trickle-down effect on the ecosystems of startup companies developing for the iPhone, Droid, and other platforms. It’s interesting to read this view as Deloitte recently came out with their 2010 Technology Predictions (Deloitte: Seven Technology Predictions for 2010), and one of those predictions was that the Prosumer trend will continue to be hot and cause disruption for IT departments.
Freemium Model. The authors say that start-ups should understand that the gap between free and paying customers is widening. As customer attention spans shorten, their brand loyalty diminishes as well. Users tend to move move on to the next trendy, free offering. This will put pressure on providers to innovate at an incredibly rapid pace in order to keep pace with market demand. For more on the freemium business model, see Wikipedia’s article on Freemium.
The National Venture Capital Association (NVCA) is out with its 2010 predictions, and the tone is cautiously optimistic. The NVCA recently released its Venture View 2010, the annual predictions survey. The NVCA survey was conducted from November 30 – December 8, 2009 and includes responses from more than 325 venture capitalists across the United States.
2010 Investment: More Dollars into More Companies. Sixty-three percent of all respondents expect venture investment dollar levels to remain the same or increase from 2009 with 44 percent forecasting a level between $21-25 billion.
Clean Technology Continues to Garner Optimism. Clean Technology is the industry where most VCs predict growth with 54 percent forecasting higher investment levels in 2010.
Web Investments. Nearly half of respondents expect Web investments to increase in 2010, with 15% betting on a decrease.
More Venture Dollars to Flow to Asia. A majority of respondents believe that there will be more investment in Asia with 70 percent of VCs anticipating growth in China-based investments and 58 percent seeing greater investment levels in India in 2010.
Later Stage Investment Predicted to Increase. According the survey, most VCs expect the Growth Equity stage of development to increase with 55 percent of all respondents predicting increased investment there in 2010.
Improving Exit Signs. 74% of the respondents believe there will be more than 20 IPOs next year with the average forecasted IPO volume at 26.3 offerings. Only 10 percent of VCs predict more than 50 IPOs.
A Contracting Industry. An overwhelming percentage of VCs (90 percent) predict that the number of venture capital firms will decline over the next five years
Deloitte and the NVCA released their annual Venture Capital global survey findings last month. The report found that (not surprising) VC firms have been cutting back in their funding of startups. While it has been a difficult recession, the industry is making some adjustments.
Some summary findings
Portfolio Pruning. 51% are decreasing the number of companies in which they plan to invest and just 13 percent are increasing this activity.
Cleantech: The clean tech sector is poised to become the leading investment category. Overall 60% of respondents say that cleantech investments are on the rise. Among U.S., UK and Israeli investors, about half expect to increase their investments in cleantech, while about seven out of 10 AP respondents and European respondents expect their cleantech investments to increase.
Globalization: Globalization of the venture capital industry will intensify in coming years, posing significant competitive questions for the United States, and opportunities for emerging markets such as China.
Regional Investments: Investment levels are more likely to increase in countries outside the United States. Governments of all countries have a crucial role to play in fostering competitiveness and innovation. Specific findings include that 52% of the survey respondents are currently investing outside their home countries. 19% of respondents expressed that investment levels will rise in Israel, 50% believe that investment will increase in Asia (excluding India); 43% in India; 36% in South America; 25% in Europe and the UK; and 17% in North America.
Government: 66% of venture capitalists would like a tax break from their respective governments. 40% believe that government support for entrepreneurial activity is important; 31% would like governments to encourage more active public markets; and 29 percent believe improved access to private capital sources will help better support innovation.
Investment Timing: According to 51% of the VCs, now is a good time to invest. Only 6 percent believe that it is not a good time to make investments.
The 2009 Global Venture Capital Survey was conducted in the first quarter of 2009 and measured the opinions of more than 700 venture capitalists worldwide. To view the full survey results visit: 2009 Global Trends in Venture Capital
A couple weeks ago, I discussed some trends in VC investments regarding Cleantech.For the G20 summit early April, the Postdam Institute for Climate Impact Research and the Grantham Institute on Climate Change and the Environment published a very interesting document about the potential for a green recovery from the current recession. (Towards a global Green Recovery)
The report shows that “Public spending aimed at stimulating private investments that help reducing greenhouse gas emissions can perform very well against criteria for an effective stimulus while providing the additional benefits of lower energy costs and increased energy security. By focusing on correcting well known market failures in energy use and R&D, it can avoid crowding out private sector activity.In fact, green recovery programs have the potential to stimulate private investment in low carbon technologies, thereby developing new opportunities for employment, innovation, and wealth creation.”The report also highlighted key measures that the G20 could take, including physical infrastructure upgrades, energy efficiency increases, and potential flagship project investments.
So what happened? The G20 communique included $1.1B in plan pledges – $750B for the IMF, $250B for trade and financing – as well as motions for stricter regulations on hedge funds and banks. While many groups are arguing that a larger GDP share should go towards green initiatives, others are satisfied that those notions have become mainstream. Personally, I think that the economic situation is such that priorities will focus on the fastest way to accelerate the recovery, possibly at the expense, at least initially, of green.
Well, this is my first time on this blog. I have worked with Bill for 10 years in IBM where he writes one of the most successful internal blogs and I was really excited when he authorized me to participate in this blog. Among emerging trends and opportunities, I am thinking of focusing on Cleantech for a couple reasons. Beyond my personal interest, this is an opportunity that I can discuss in any job interviews I hope to get over the next few months… Whether it is hype or reality, people and companies always show interest and understand at least some aspects of it. VC investments are a good benchmark to measure the potential of emerging technologies.
According to PWCC / Reuters / National Venture Capital Association data, VC investment cuts were notable in 2008 (-8% in volume, -4% in deal volume) - this was the first year since 2003 that total investments slowed. The brightest spot was investment in clean energy technologies which increased 52% to $4.1B. Seven of the 10 largest deals for the year were in this area. By contrast investments in Software companies fell 10% and life sciences startups 15%, even though biotech and medical device startups were the top investment sector for 2008.
Cleantech investment focus is on solar energy and photovoltaic companies which received $1.8B in 2008. Startups that make energy from other sources, including ethanol and nuclear energy were next, getting $561M or 14% of the total. Other major investments benefitted companies that recycle chemicals and battery startups.
A little European pride to finish — Deloitte 2008 Global VC Survey shows that Europe is emerging as a new leader behind the US for Life Sciences and Cleantech — led by Germany and the UK. Will have to find out where France stands…