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There are a lot of words to describe 2023, but “predictable” isn’t one of them. Factors that range from broader public funding to the surge in AI capabilities have caused tectonic shifts in the venture capital landscape. It’s time to explore this new world and draw a map of new challenges and opportunities. These are the trends that will be the most influential in 2024.
Related: You Need to Do These 5 Steps If You Want to Survive the Difficult Funding Market
1. Quality will trump quantity
Start-ups have more funding choices than ever. Venture capitalists must compete with cryptocurrency and crowdfunding when looking for start-up partners. According to recent surveys, only about one in 20 new firms depended on venture capital for their start.
VCs can only bet on a few companies, hoping one will succeed. Instead, VCs must be choosier, limiting themselves to the most innovative companies. There will be greater competition, especially at the pre-seed stage. Some firms that, at an earlier age, might have gone the VC route will go directly to the audience they want to serve.
Venture capital investors must show firms why they are the right choice for a partnership. Show a history of good guidance and trust to help them choose you.
You, of course, need to be just as selective with your offers. Since there is more competition, there will likely be fewer opportunities to go around. You need to be sure you are picking the winners. Luckily, the other four trends on the list will help savvy VCs come out on top.
2. Public web data
Finding quality companies that need a flush of outside funding can be challenging. The wealth of data now available can help VCs winnow through the stacks. Public web data can be used to build models to predict a product or company’s potential. It can track a firm’s rising or falling popularity.
Data, including social media posts, job postings, satellite imagery, and more, can all contribute to a landscape picture. VCs no longer need to make their best guesses based on traditional assets like press releases and financial statements.
Understanding how to gather and translate this data into a narrative and predictions for the future is vital.
3. Automation and new tech adoption
Automation technology makes new firms more efficient than ever. And consumers are always happy to find solutions that make their lives easier.
The result is a boom in service areas like fintech and office technology. Consider the changes during the pandemic shutdowns: people were limited to online baking and remote work or learning. Solutions that people were wary of before are now familiar. This can mean new opportunities that build on those technologies.
Related: From Mundane to Magic: The Incredible Benefits of Automation for Small Business Owners
4. Think zebras, not unicorns
Who wouldn’t love to find a unicorn? Everyone is looking for those companies that, with some innovation, can become a billion-dollar business. But that’s the problem: everyone’s hunting for unicorns. The competition is so steep it can contribute to unicorns being overvalued.
Instead, look for zebras. These companies are worth under a billion, but they show the potential for sustainable income for years. This sustainable nature means you can diversify your strategies and create more income.
5. Greater diversification
Keeping profitable will mean looking into new areas globally and in a broader range of companies.
The digital world means we are not limited geographically the way we once were. Communication with partners in every corner of the planet is now possible. Instead of being stuck in Silicon Valley, you can work with firms anywhere from São Paulo to Nairobi.
Explore different niches. Learn all you can about new industries. By expanding your range of knowledge, you’ll increase your ability to identify potential winners. Bonus if you are looking at new firms that have yet to attract the attention of other VCs.
Look at different firm sizes. There is room for unicorns when you find them, but also for zebras. A mix means more opportunities to see the ones that will be a big success.
The venture capital sphere has seen significant changes in recent years. There is no reason to expect that 2025 will have any fewer surprises. The landscape is changing, and the successful investors will be the ones who embrace the change and move with it. Putting everything we’ve learned into play allows us to open our eyes to new possibilities and find new opportunities for success.
