Author: Abdullah Mert Akman (Master in Management & Technology)
Supervisor: Prof. Dr. Isabell M. Welpe (Chairholder of TUM Strategy & Organisation)
As a result of the research, four popular topics were found where VC and innovation intersect. Money, green, database, and entrepreneurship-based trends were examined, respectively. Each trend is a general set of the fastest-growing areas of the last ten years.
💸 Cryptocurrency, zebras, new alternatives, fractional CFOs, and portfolio distribution are examined in detail under money trends. While the concepts of cryptocurrency and zebras have been the most popular money trend titles in recent years, their popularity has increased more recently, although the others are older titles.
🌳 Sustainable investment has become one of VCs' most important agenda items after the steps taken by governments. Together with Cleantech, they have become the most popular area of green trends.
🖥️ The importance of big data has increased very rapidly and continues to increase, but all institutions are experiencing significant difficulties in the analysis of this data. VCs are also trying to improve themselves in this area. Algorithms and alternative data fields offer a new perspective for VCs.
🚀 Entrepreneurship-based trends are one area where VCs are evolving to focus on the right startup. Being a pioneer, using marketing, and benefiting from diversity are examined under this title.
🎯 Research Motivation
In supporting entrepreneurship and in the development of technologies in the world, the importance of venture capitalists is more than is thought. It is essential that in the last ten years, innovations in some areas have accelerated much faster than expected, and VCs are having a hard time keeping up. This study analyzes in detail the most critical trends that VCs should follow.
⏩ Next Trends of Venture Capital in the 21st Century
As a result of the research, four popular topics were found where VC and innovation intersect. Money, green, database, and entrepreneurship-based trends were examined, respectively. Each trend is a general set of the fastest-growing areas of the last ten years. Cryptocurrency, zebras, new alternatives, fractional CFOs, and portfolio distribution are examined in detail under money trends. While the concepts of cryptocurrency and zebras have been the most popular money trend titles in recent years, their popularity has increased more recently, although the others are older titles. Sustainable investment has become one of VCs' most important agenda items after the steps taken by governments. Together with Cleantech, they have become the most popular area of green trends. The importance of big data has increased very rapidly and continues to increase, but all institutions are experiencing significant difficulties in the analysis of this data. VCs are also trying to improve themselves in this area. Algorithms and alternative data fields offer a new perspective for VCs. Entrepreneurship-based trends are one area where VCs are evolving to focus on the right startup. Being a pioneer, using marketing, and benefiting from diversity are examined under this title.
💸 Money Trends
The year the cryptocurrency gained popularity was 2017. Until that year, only a tiny minority of VCs were investing in this space. With the rapidly increasing popularity of this field, VCs have also tended to this field. Zebras are companies that exhibit traits that are the opposite of unicorns. After many unsuccessful attempts, born with the Unicorn dream, the orientation towards Zebras increased rapidly. The expectations of VCs from startups have also changed over time, and new alternatives are frequently discussed. Fractional CFOs have become one of the most essential needs of startups lately. Knowing the right CFOs makes it easier for VCs to invest in the right startups. Portfolio distribution is an issue that has been discussed frequently since the middle of the 20th century, and it is still an issue that is not clear what the correct solution is. In an area where working with the right fund managers is also insufficient, many VCs make less money than they invest.
🪙Cryptocurrency
Blockchain technology initiatives are added to their portfolios by venture capitalists. The number of these initiatives is snowballing and will continue to increase. In 2018 alone, 300 new funds were established in this area. There are many different reasons why crypto assets are preferred. Its features, such as being able to be used as a service, being known by the public, being able to trade quickly, and adapting to projects, come to the fore.
🦓vs.🦄 Zebras vs. Unicorns
Zebra companies have a character we can call the complete opposite of Unicorns. They want to be a company that takes firm steps forward and is truly beneficial to the world instead of being a success story that the whole world knows. This is why there is a more enormous wall between zebras and venture capitalists than there are unicorns.
🆕 New Alternatives for VC
Entrepreneurship ecosystems are now hosting more quality-oriented startups, and this seems to lead to significant changes in the areas where VCs invest in the coming years(3). The zebra movement is a good start for investors who focus on profitability rather than funding. These initiatives, whose focus is on social impact and income, will soon change the perspective of VCs.
👩💻Fractional CFOs
A fractional CFO has many positive effects on a venture, and these effects are the best answer to why you should work with a fractional CFO. First, CFOs play an important role in developing long-term strategies. Secondly, Fractional CFOs are at the heart of sustainable growth by playing an essential role in properly analyzing the company's roadmap.
📊Portfolio Diversification
Portfolio distribution is an enigma for VCs. The question of how much the company should allocate its investments still does not have a definitive answer. It is more complicated than it is thought to make the right choices with crowded teams between data analysis and the knowledge of experts.
💚 Green Trends
VCs who care about sustainability place more value on two main issues. They invest in initiatives that address the challenges faced by the environment and nature and in initiatives that have a significant impact on society, such as education and health. ESG factors are the basis of sustainability. These factors are an accurate measure that startups can use to show venture capitalists that they genuinely care about the environment and nature. There are many areas for venture capitalists to invest in sustainability. In fact, many new opportunities are presented to investors every day. There are many challenges to sustainability. The most obvious of these are geographical, political, and cultural influences.
🟢 Sustainable Investing
VC investment will not only be monetary. At the heart of these projects is the idea of commercializing science. Investors step in at the point of earning income from the innovation made. The investors create the income item by explaining this sustainable project or product's various social and environmental advantages to society and the consumer. There are seven issues that venture capitalists should do in this regard and according to ESG factors. These are management, risk management, materiality, impact technology, monitoring, value creation, and proportion.
🍃 Cleantech
Cleantech is a project and product based on reducing environmental pollution and waste consumption, focusing on keeping productivity and efficiency high and contributing to nature by making use of nature while doing these. It is based on the fact that the need for clean energy has increased both in terms of producers and consumers.
💻 Database Trends
This is a relatively new topic for many venture capitalists. It is still quite challenging to find sufficient resources in this area. Because: the importance and usability of big data are still questioned by venture capitalists. Under this title, the importance of algorithms and alternative data types for venture capitalists was examined in detail.
ℹ️ Algorithms
Risk shareholders are doing a lot of work on the use of artificial intelligence in the investment sector after it has proven itself in different sectors. Like every process in science, there may be a mistake in AI processes, and this mistake may be that artificial intelligence makes completely unbiased and rational decisions. The biggest proof of this is that nothing about machine learning was created in a vacuum. The people who created these structures are people who are proficient in statistics and computer science.
💁Alternative Data
The data sets used as a supporting factor in creating new strategies are called Alternative data. With the development of technology to alternative datasets, many sources have emerged. The traceability of what individuals and society do has never been so high. The biggest positive aspect of alternative data is that it does not have a negative side about what it can gain. It provides information that can be used as a natural supplement for VCs, and thanks to this information, it provides a supporting factor in making a more accurate decision.
🚀 Entrepreneurship Based Trends
As the number of venture capitalists increased, the need to reach the right VC entrepreneurs arose over time. Entrepreneurs are left alone for a long time after receiving financial support, and this is one of the main reasons for failure. This has led many entrepreneurs to evaluate VCs from different perspectives.
💯 Being A Pioneer
Being a pioneer in the field of investment is not only done for financial gain but also for non-financial reasons. Researches also show that venture capitalists investing in early-stage companies pioneered more patents than other investors, so they received more awards and became more popular in the ecosystem.
🛒 Marketing for VC
Marketing and brand awareness is a needs that every company has to prove itself today. It is one of the areas where venture capitalists who are new to the market need to develop and prove themselves. The more a venture capitalist manages to make himself heard, the stronger the fund and the quality of the entrepreneurs will increase.
👨🏿🤝👨🏼Diversity
It has been observed that the performance in companies with a strong balance of male and female managers is higher than in other companies, and it has a higher positive contribution to company growth compared to a single gender.
💪 Characteristics of Innovative VC Firms
Innovative venture capitalists have three main characteristics in common. First, they often consider extremely high-risk investments as normal. Investing in potentially high-return startups comes with high risk. Second, they often focus on early-stage companies. Third, it usually focuses on a particular industry or sub-sector.