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Venture Capital Trends & Analysis Insights

Enjoy Insights from Venture Trends – December 13th, 2022

Key takeaways and insights about the trends that will affect venture capital in Q1, 2023.

On December 13th, 2022 VC Lab hosted the latest installment of Venture Trends.

We surveyed the VC Lab community on the top trends affecting venture capital in Q1 2023. You can hear more about the results of the survey in the video above. Below are some of the key takeaways from the participant discussions on popular trends.

How will lower valuations affect the industry?
  • In 2022, valuations took a hit globally, though specific geographies experienced a much higher impact than others.
  • Late-stage startups have found it challenging to justify their valuation frothiness.
  • Seed stage (& pre-seed companies) fared better to hold up a broader valuation compression.
  • Eager investors with dry powder can now find deals priced favorably.
  • While FinTech and Web3 have taken a bigger hit in valuations, AgriTech, FoodTech, and AI are areas of growth and focus.
  • Startups that have been diligent and built runway have a higher chance of staying afloat. In parallel, competition for such ‘creamier’ deals will likely keep them attractive for VC capital, hence seeing less valuation compression.

The rise of Deep Tech
  • Deep Tech teams are usually R&D heavy, in the beginning, so ensuring that there’s a commercial counterbalance is key.
  • Public funding and grants are a good way to address early-stage risk. These opportunities are crucial to unlocking the first VC and commercial capital for companies to progress. 
  • There’s an ongoing challenge in positioning the category among institutional fund of fund investors due to timelines to market and costs of investments.
  • A careful filter of team, timing and market strategy can help skip and fast-track investment ROI for VCs.

How will AI impact the venture ecosystem?
  • AI is getting democratized through enabling platforms and foundation models. This is enabling faster, easier, more sophisticated, and cheaper development of AI applications.
  • VCs need to take seriously several risks with AI: the societal impacts, ethical concerns, biases, disparities, the potential for misuse, and potential damage from premature deployment.
  • Better awareness and more diligence (possibly also regulation,) are needed to mitigate issues and ensure a positive impact of AI.
  • AI can support the work of VCs (eg, research, analysis), but compared to mutual funds, hedge funds, etc, it may not be as disruptive to their practice.

Will a market slowdown bring any upside for VCs?
  • While there’s a high chance of a global recession in 2023, not all markets will be affected equally, including Asia and Africa.
  • A recession filters out weak would-be entrepreneurs from starting companies and spotlights better-run startups thus raising the average quality of deals.
  • Startups will see an improvement in the economics of execution caused due to lower costs of operations and the availability of talent.
  • A recession creates new problems or aggravates existing problems, creating new opportunities for start-ups thus spurring innovation and adoption.
  • A downturn has a sobering effect on startups that will prioritize survival over pumping valuations. Thus making it an attractive time for investing in companies.
  • VCs will keep with their current pace of investing with many indicating that they may accelerate their pace.

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