By: John Sharp, Co-Founder and Managing Partner of Hatcher+
As we bid farewell to 2023, we find ourselves at a pivotal intersection in the venture capital (VC) industry. This year’s end offers an invaluable opportunity to review the significant transformations and anticipate the future landscape.
2024 will, in many ways, mark the end of the old way of doing business as a VC, and the beginning of a powerful transition — one that almost all other asset classes have already made.
2023: Venture Winter: An Industry “Own Goal”
The VC landscape in 2023 was characterised by resilience and a marked reticence by many to invest – a period that many in the industry have chosen to refer to as the ‘VC Winter.’
I personally disagree with those who believe that this is the wrong time to invest in venture-backed startups. If I were to choose between investing prior to the Venture Winter, in 2021 (when every founder thought their company was worth a billion dollars) and investing in 2023, I would choose to keep my powder dry and invest during a period of rationality – i.e. right now.
The quality of ideas are much the same. The only real difference is that public market exit scenarios are difficult to visualise right now. This might be a problem for folks ten years into executing their business plan. But if you’re an investor in a company that is seven to ten years away from any kind of exit, this concern is irrelevant.
But there is a bright spot to come out of this, and it’s the large amount of dry powder that is waiting to be invested. Despite global economic headwinds and market uncertainties, globally, VC investments demonstrated remarkable stability during 2023, settling at around $94 billion in the second quarter. This stability, though slight, was a significant indicator of the sector’s adaptability and underlying strength.
In markets like the U.S., India, Korea, and Australia, there was not just growth but a resurgence in investor confidence and entrepreneurial dynamism. The U.S., in particular, demonstrated a 10% quarter-over-quarter growth, excluding some large deals, indicating a recovering market confidence.
At Hatcher+, 2023 was not the year that slowed us down. In fact, we sped up. We are investing in more startups during 2023 than in any of the previous six years, busting through the ‘venture winter’ myth.
Entrepreneurs are still innovating. Valuations are more rational, and teams are more focused on performance than ever. Present circumstances afford an opportune moment for investment, in fact, there was never really a need to ever stop investing. And it’s time to acknowledge this as the industry’s “own goal”.
2024: The Year VC Gets Serious About Digitization and Impact Investing
One of the standout stories of 2023 was the role of AI as a transformative force in numerous industries. The venture capital landscape experienced a significant shift, largely driven by advancements in AI and digital technologies, including data analytics.
In 2024, we foresee a number of such transformative trends that will redefine the venture capital landscape:
- Rise of Decentralised Venture Capital Networks: 2024 will witness the rise of decentralised venture capital networks, leveraging secure deal-sharing and blockchain technologies. This shift will enable a more transparent, efficient, and democratised funding process for founders. It will facilitate a new breed of investors to participate in venture capital, including smaller investors and global talent, leading to a more inclusive and diverse investment landscape.
- Automated, Dynamic Portfolio Management: Leveraging AI and machine learning, dynamic portfolio management tools will become mainstream. These systems, designed to continuously analyse market trends, startup performance, and global economic indicators, will suggest real-time portfolio adjustments, optimising investment returns and mitigating risks in an ever-changing market.
- Surging Green Tech and Sustainability-Driven Investment: In response to the global climate challenges that saw the planet achieve record-high sea surface temperatures in 2023, there will be a necessary surge in investments in climate-tech, green technology and sustainability-driven startups.
Venture capitalists increasingly favour businesses that contribute to environmental sustainability, leading to innovative breakthroughs in clean energy, waste reduction, and sustainable agriculture. This trend will be bolstered by increasing consumer demand for eco-friendly products and services, as well as government incentives for green initiatives.
2024: Family Offices vs. VCs
2023 marked a paradigm shift in VC with the rising influence of family offices, which transitioned from passive limited partners in funds to actively engaging in direct investments in startups. There might be questions over whether these entities can challenge traditional VC models. But the fact of the matter is, many family offices, some many times larger than the largest of Silicon Valley structures, have more business experience embedded in their DNA than the most experienced venture firms.
Family offices, with their substantial resources and long-term outlook, offered startups more than capital. They brought experience, networks, and a focus on transformative projects with societal impact. This trend posed new opportunities and challenges: startups gained access to a broader investor base, while traditional VC firms faced increased competition and pressure to innovate.
There’s an anticipation for this trend to gain momentum in 2024, potentially leading to a more diversified and dynamic venture capital ecosystem. A combination of family office money and experience combined with emerging technologies could significantly, and permanently, reshape the venture investment industry.
Our Goal for 2024: Continue to Develop the Core Technologies Needed For Digital Transformation in the Venture Capital Industry
Aligning with the needs of the evolving industry, at Hatcher+, the past five years have been focused on developing a suite of AI and process automation tools.
Hatcher+ FAAST™ (Funds as a Service Technology), represents our commitment to integrating cutting-edge technology into our operations. An AI-powered Pitch Deck Analyser and DealGraph AI-assisted search functionality are examples of how technology can enable the next generation of venture capital strategies.
In 2024, Hatcher+ aims to leverage these tools to enhance the venture capital process, adopting a more data-driven and precise decision-making approach, reflecting the broader industry trend towards faster deal-making and larger portfolios.
But this approach is not just about efficiency, it’s about a much bigger movement, away from tired, manual processes, towards a more efficient, scientific, end data-driven approach to the world’s most rewarding asset class.
