The flow of capital into the venture-capital arena appears to be slowing as once high-flying unicorns are disappearing. Valuations are sure to fall as interest rates rise.
This is a healthy change. Froth comes out of the market, and investors have time to think through business ideas while engaging in deeper diligence. And venture capital remains flush with an estimated $230 billion in dry powder to be invested.
While a slowing economy can be daunting for business operations, it is a critical time for business decisions. In boom times, there is little incentive to drive productivity. Capital is cheap and businesses are willing and able to spend more freely. Difficult times, in contrast, often portend important investments in innovation and productivity.
That appears to be where venture is headed. Right now supply constraints, rising labor costs and the energy transition are creating challenges across industries—prompting a drive for efficiency-enhancing technologies. For venture investors, technology is no longer a distinct sector. Innovation occurs across industries and includes software and hardware ranging from biologic to synthetic with applications to industrial processes and consumer habits.
Here are some key areas ripe for innovative breakthroughs:
- Automation – Creating toolsets that make software developers more efficient.
- Digitization – This continuing trend will increasingly simplify transactional businesses such as financial services, event ticketing, and regulatory compliance.
- Cybersecurity – Increasingly critical as both an economic and geopolitical priority.
- Energy transition – While the world moves to reduce reliance on carbon-based energy, investment will continue to be made in making traditional energy usage more efficient while expanding alternatives to carbon energy.