Because it has been so effective and beneficial for both businesses and large investors, we can expect the nature of venture capital investment to remain fundamentally the same. But because of certain technological, industry, and market disruptions, some aspects of the business are definitely changing.
First things first: what is venture capital?
So what is venture capital exactly? It’s a specific type of private equity where investors make investments in small, early-stage enterprises in order to help them grow. The investors get an ownership position in the firm, which gives them the right to participate in the decision-making process. Often, they also provide support in the form of technical and managerial experience, access to a network of industry contacts, and other resources to assist in the startup’s development.
VCs expanding their portfolios with care
One of the major trends in venture capital has been the widening opportunity set for venture capitalists. Given the increasingly global and digitized landscape of investment, geographical boundaries have become less of a concern for general partners. There’s no denying the resonance and appeal of Silicon Valley, but tech-focused investors are looking at more distant horizons, casting their eyes on destinations as far as Asia.
Diversification isn’t just about location. With COVID’s impact on certain industries still fresh in their minds, players in the venture capital space are considering less concentrated strategies and looking at a wider diversity of companies. Rather than just focusing on disruptive “unicorn” companies, some are also looking at “zebra” companies, so called because they are both black and white – pursuing profit while helping to solve societal problems through their business models and operations.
Still, that doesn’t mean investors shouldn’t be cautious. While VC firms are always on the hunt for areas to have their capital invested, the recent upheaval in the economy and public markets have taught them to favour companies with solid paths to profitability.
