In the World of Wild Venture. March 2023
A monthly guide to the world of venture investments news
In the March issue of the Digest, we look at global venture capital developments and where the wind is blowing. There are also plenty of quarterly reports. We took notes on fintech, crypto, AI, IoT, healthcare, gaming, food tech, clean tech, agtech, mobility, e-commerce, and insurtech. All in all, startups are for all tastes. Pay attention to the useful stats at the end. There's some interesting stuff in there.
Top Stories
Where did the top funds invest in Q4 2022?
This is the traditional PitchBook column, in which the authors have analyzed 130 early-stage deals in which the top 15 global funds have invested.
Looking at the big picture, funds continue to reduce their investment levels for the fourth quarter in a row. At the same time, deals with large checks (over $100 million) have normalized, indicating a gradual return of attention to later stages. As we know, the venture capital world has not been very fond of them in recent years.
In terms of industries, Biotech, AI & ML, Data Tech, Healthtech, and Enterprise SaaS attracted the most investment. Surprisingly, Web3 & DeFi continue to hold high positions despite all the scandals and apocalyptic predictions.
The least popular industries are Climate tech, Insurtech, Edtech, Space tech, Adtech & Martech, and Gaming.
Startups are asking for more money than they can get from investors, according to PitchBook.
Late-stage companies, as well as software development and medical services, are particularly hard hit. Here there is a significant skew of 2.8x, meaning that startups need almost three times as much money. In the early stages, the imbalance is 1.5 times. The only industries that do well are biotech and pharma.
As a result, startups are willing to compromise and agree to more favorable deal terms for investors. The authors also note that early-stage startups offer the best returns.
And another observation. The multiples of public companies in which venture capitalists have invested are at their lowest levels since 2016. We should not expect IPOs to blossom any time soon.
The higher you go, the harder it hurts to fall.
In 2021, fintech startups were experiencing a gold rush. Their revenues grew by 500% and more. But already in the second half of 2022, some companies were forced to survive, reports PitchBook, citing Kruze Consulting. According to their data, brokerages, robo-advisors, consumer neobanks, and especially crypto startups suffered the most. B2B projects were the most resilient.
The study also touched on other industries. Healthcare and e-commerce startups are stable, and software/SaaS has grown.
While we're on the subject of finance, a review of enterprise fintech has appeared.
B2B fintech startups include alternative lending, capital markets technology, commercial finance, financial services infrastructure, payments, regtech, and wealthtech, among others.
Here, the 2022 results show 1,764 deals worth $35.1 billion from investors, down 32% from the previous year. The authors of the study note the low activity in the sector, which is at 2019 levels. Investors are very cautious about investing here. Nevertheless, the B2B fintech sector has already surpassed the B2C one. It accounts for almost half of all investments.
In addition, there is an up-to-date report on B2C fintech cases as well.
In 2022, investors closed 995 deals worth $22.9 billion, one of the worst numbers in four years. As you can see, the focus today is more on B2B products.
Industries. Part One
How are crypto startups doing in Europe?
According to Dealroom, European crypto startups attracted an absolute record $5.7 billion in investments in 2022. Europe also broke another record. Most crypto startups are located here, not in the United States or Asia.
The most popular sectors are financial products and services (DeFi, CeFi) and blockchain infrastructure (Layer1, developer tools).
The Web3 sector received the least money, but the study does not provide details on this point.
Global investment in crypto startups in 2022 amounted to $31.4 billion, or 16% of all venture capital investment in the world. This is the level of the record in 2021, which is amazing.
One of the hot topics in venture capital today is artificial intelligence.
By the end of 2022, investors had made 2,956 deals worth $45.8 billion. That's 34% less than the year before, but higher than any previous year. In other words, the trend is positive even without the later hype. The average deal size was $20.7 million. The key geography was the United States, which accounted for the majority of deals and dollars. 66% of all investments went to early-stage startups.
There is no detailed information on specific industries yet, so we will come back to this topic in the future.
IoT startups are feeling the heat, reports PitchBook.
Based on the analysis for the second half of 2022, investors put 62% less money into the industry. Researchers note that IoT projects have proven to be overly vulnerable to macroeconomic shocks and lack resilience.
By the end of 2022, investors had 1,470 deals worth $15.1 billion. That's level of 2019 and 2020. It looks okay for now, but I wonder if the downtrend of the last few months will continue. Then we can draw more accurate conclusions.
New – Healthcare IT Review.
Startups in this space are developing software to streamline various bureaucratic and administrative tasks, such as scheduling doctor's appointments. In the U.S. alone, the market is valued at $265 billion. A typical clinic generates massive amounts of data that needs to be organized, collected in one place, and synchronized. This is difficult to do even today.
At the end of 2022, investors had $5.4 billion in deals. Less than the record-breaking 2021, but above the 2020 level. This suggests a positive direction. Among the challenges facing healthcare IT, the authors highlight acute financial stress due to cost inflation and the dominance of the enterprise electronic health record (EHR) vendor oligopoly.
Industries. Part Two
Venture investments in the gaming industry amounted to $13.3 billion in 2022.
Less than in 2021, but twice as much as in 2020. These are good results. The authors note the resilience of the sector to external shocks. Although there may be exceptions, such as consoles, which depend on component supply chains.
Investments are being made in web3 infrastructure, game content, artificial intelligence, and tools to help intellectual property owners monetize gamers. Separately, the authors mentioned the untapped potential of VR/AR.
As of 2022, investors in the food-tech industry have made 1,578 deals worth $20 billion, a 23% decrease from the previous year.
The authors note that the sector has managed to stabilize after several quarters of declining activity. There are no anomalies here. Foodtech suffers from the same macroeconomic factors as other industries and is not unique in any way.
Investors have poured the most money into bioengineered foods. This includes functional foods, molecular engineering, novel ingredients, food forms, and processed foods.
Cleantech startups raised $16 billion across 582 deals in 2022.
A confident level for the record year of 2021. Back in 2020, investments amounted to a measly $5 billion. The reasons for such active investor interest in the industry are related to the gradual abandonment of traditional fuels. This process is also facilitated by the planet's growing climate problems, which governments are doing their best to solve.
Whoever offers affordable alternative energy sources will truly get rich. In 2022, venture capitalists invested the most money in solar photovoltaics, chemical batteries, hydrogen, analytics, and grid management.
Digital health startups raised $7 billion in 2022.
This is half of the 2021 figure. Analysts say there are two reasons for the drop in investment. The first is the end of the COVID-19 pandemic, when all attention was focused on health. The second is a distinguishing feature of health tech startups. Their revenues often depend on the seasons; there is not enough stability.
The most popular categories of startups are telemedicine and digital patient care management. Coaching and wellness turned out to be the least preferred.
Industries. Part Three
Surprise! Agtech is back on the menu, boiz.
Venture investors have paid little attention to this industry, but the tide is turning. According to the 2022 results, startups made 988 deals worth $10.6 billion, the second consecutive record year. Interestingly, 74% of the investments were made in later stages, which speaks to the specifics of the industry. Unlike most other areas, agtech investors prefer mature companies. The dominant geography is North America. It accounts for nearly half of all capital.
The most popular categories of startups are Ag biotech, indoor farming, and precision Ag.
No surprises about the mobility sector. Things are still bad there.
In 2022, investors signed 1,246 deals worth $44 billion in the mobility industry. The worst results in four years! The most popular industries are the development of EVs and trucks, as well as autonomous driving. Extremely unpopular sector for investment at the moment.
State of e-commerce according to PitchBook.
By the end of 2022, investors have done $8.5 billion worth of deals. The industry is not experiencing the best of times. There is a significant decline in activity, which has already reached the level of 2019. The authors note that vendors are facing significant challenges: high competition, rising customer acquisition costs, shrinking margins, and a looming recession. Not the best sector to invest in today.
The last report for today is about Insurtech.
According to PitchBook, investors made 610 deals worth $9.3 billion in 2022. That's nearly half the number from the last year. This industry is considered problematic due to its high capital intensity. In addition, insurtech is very sensitive to macroeconomic stress and suffers more than others. Analysts are seeing a decline in the valuation of startups at all stages, as well as a minimal number of exits. It is now difficult to sell such assets profitably.
Non-VC-related, but informative and even funny
Updated term sheet article on Sifted. Explains common terms like liquidation preferences and anti-dilution rights. Useful for startup founders.
PitchBook analyst talks about the opportunities to improve public transportation. Useful for mobility startups.
Time tells on the phenomenon of why people are often paralyzed in their sleep.
Forbes article on how artificial intelligence is helping find future soccer stars.
Twenty-five years have passed since the release of the cult film The Big Lebowski. The Hollywood Reporter is marking the occasion with a special feature on the film's history.
It turns out you can buy happiness for money, Insider reports.
Four tips for taking better pictures with your phone from a National Geographic staff photographer. Insider, too.
A new AI-based technique called cell painting could be the next big thing in the biotech world, reports MIT Technology Review. Technology helps to discover new drugs.
How to stop taking everything personally and being offended by trivialities, describes NPR.
We are running out of resources to make batteries and accumulators on land. Next, we will have to dig underwater in the oceans and seas, reports Wired.
Our perception of time depends on our heartbeat, says The New York Times.
Generation Z is the fastest to get into debt and the least likely to get out, Insider reports.
Meanwhile, the next batch is coming – meet the Alpha generation in the Dazed piece.
Soccer referees have the most stressful job, according to The Guardian.
Useful Data, that can come in handy
The 100 most cited artificial intelligence articles in the world in 2022.
By 2023, global spending on AI systems will reach $154 billion, according to IDC.
In the first quarter of 2023, investment in generative AI tripled to $2.3 billion, according to Axios Pro. At the same time, there has been a significant withdrawal of capital from metaverses.
Tendencies in the mobile gaming industry in a video from Google Türkiye.
There are 3.2 billion gamers in the world, according to The Economist. And they spend 70% more on games than on streaming platforms.
Green hydrogen investments jumped to $3 billion in 2022, Dealroom says.
From the Editor
Artificial Intelligence is all the rage. We are working on a comprehensive article that will help to understand the topic from the ground up. Maybe you have some bits of advice? If so, please share them in the comments below.
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