Will the wave of investment from venture capital firms in technology continue?


Venture capital (VC) firms continue to invest money in technology companies even as startups consider alternative financing mechanisms. According to a pitchbook reportThis trend includes a record increase in pharmaceutical and biotech investments. Business-to-business (B2B) technology, business-to-consumer (B2C) technology and FinTech maintain the momentum that began in late 2020.

Will the wave of investment from venture capital firms in technology continue?

It certainly seems like a great time to be part of a tech startup.

Wave Capital Partners, an investment banking consultancy that advises technology companies on raising capital, believes the trend will continue in the near future. However, they are quick to acknowledge some concerns about inflation and other factors.

Recently, Garrett Boorojian, managing partner of the firm, participated in a question and answer session on this very topic. Boorojian’s ideas appear below.

Tech VC entries have been very strong last year. Do you think that trend will continue in 2022?

Absolutely! Tech venture capital is a must, and the trend in venture capital investments will continue into 2022 and beyond because “now” is “future” too.

Most tech companies

In no particular order, Washington State, California, Texas, Florida, North Carolina, New York, Georgia, and Michigan are the US states that most tech companies call home.

Various technology endeavors

The technology VC space plays an important, perpetual and holistic role in funding diverse technology endeavors. Launching startups and startups that make positive and transformative differences in society is the essence of entrepreneurship in any industry, even the world of technology.

The technology VC space also provides the vehicle for large-scale growth of a product, a service, an application, a type of software, a medical device, or any other technology-related capability. Today’s technology VC investments will create new supply to meet tomorrow’s new industry demand.

Right now, what are the areas of technology that venture capitalists seem most interested in?

Lately, PropTech and FinTech. Other areas where investors have a significant ‘ongoing’ interest are technology spanning healthcare, energy, artificial intelligence (AI), information technology (IT), cybersecurity, augmented reality (AR ), the Internet of Things (IoT) and the consumer. products and services based on.

Technology: the core component

As long as technology is the central component, the business models of technology start-ups and early-stage companies must demonstrate all the elements necessary to attract the right technology venture capital investors to be the first financial backers. of companies.

Strong executive leadership

Suppose investors see that a particular technology-related company has the potential to go public in the future, in addition to its needs for capital and other value-added resources and expertise to grow. In that case, strong executive leadership and advisory council teams should be directing and advising the company from the start.

What is attracting investors to FinTech and PropTech above many other areas?

Investors are drawn to the practicality, functionality, and monetization of the methods and systems that technology companies can offer to consumers domestically and globally. In particular, investors are aware of the continuous modernization through technological advances in the world of real estate and financial services.

Better ways to manage, save and spend money

Investors, including venture capitalists, hope to deploy capital in these technology areas if there are smarter, more efficient and innovative ways for consumers to live, work and play. They also want to invest in better ways to manage, save, and spend money.

Easy to use platforms in technology

The accessibility quotient affects how quickly and successfully consumers can connect to easy-to-use platforms in a thriving technology environment. It may help to remember that investors in FinTech, PropTech, and other areas of technology are consumers too.

What macro factors do you think will influence the availability of capital over the next 12 months?

If inflation continues to rise, the Federal Reserve may raise interest rates twice in early 2023. Legislation that United States President Joe Biden eventually enacts will also dictate the availability, or lack thereof, of less expensive capital over time.

Startup founders are looking for available capital right now

Startups and early stage companies must take the lead with venture capital and private equity (PE) firms simply because the capital is available right now. Entrepreneurs who need venture capital investments in their businesses cannot afford to think that affordable money now will always be there six to 12 months from now.

Entrepreneurs must continue to expand

Fortunately, the economy continues to grow strongly. There is still a shortage of manpower and material, but everyone hopes that these two dire situations will be resolved soon. Suppose interest rates go up in the future. In that case, inflation will decline, but it should not reach the point where companies are dissuaded from hiring key people to help run and run their business ventures. Our economy cannot afford that its entrepreneurs stop expanding their operations or at least hesitate to take on more VC or PE capital, or debt of any kind, at critical times of growth in their businesses.

Furthermore, from a macro perspective, natural disasters and other inevitable life-altering events could restrict access to capital and affect the financial portfolio of anyone on Wall Street or Main Street.

Could the rate hike or tax reform lead to a tightening of the availability of venture capital?

Yes and no. The Biden Administration proposes an increase in the long-term capital gains tax rate for Americans earning more than $ 1 million and the corporate tax rate and ending the accumulated interest gap.

There is a split that relates to the general hypothesis within the VC community as to whether these proposed changes will slow down VC investment.

Capital Gains Tax Rate Increase?

Along with PE groups, many venture capital firms that supported President Biden during his presidential campaign oppose raising the tax rate on capital gains. They believe this increase will hamper long-term investment opportunities and slow economic growth as our nation tries to recover from the pandemic.

Others in the venture capital world, albeit in the minority, believe that these legislative proposals will not stop investment in startups and early-stage companies if they are enacted into law. The agenda of President Biden and other investors is not surprised. In fact, they had already anticipated ongoing talks between the president and congressional leaders in Washington, DC.

Go beyond inflation problems

Regardless of political preferences, no one wants inflation to rise to a level where capital acquisition becomes more expensive. Higher inflation It would cause significant diminishing returns and diminishing returns for venture capitalists. An increase in inflation would cause less competitiveness in many sectors of the United States, potentially in the technology space as well.

If higher inflation occurs, regardless of the challenges, venture capitalists would still have to be available to invest and help grow technology-related businesses.

If tech companies expand and make enough profits to go public, our economy benefits when these new public companies raise even more capital to create more job opportunities.

A slight increase in inflation is sustainable, but not to the point of overvaluing any sector of the economy. Venture capitalists are part of the bridge that helps a startup find its way to becoming a major public company. Overvaluing would bring down that bridge.

Image credit: ruslan burlaka; pexels; Thank you!

Deanna ritchie

Deanna ritchie

Editor-in-chief at ReadWrite

Deanna is the managing editor for ReadWrite. Previously, she worked as the editor-in-chief of Startup Grind and has over 20 years of content management and content development experience.


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