Insights series / 24 March 2021
3 things we learned about Venture Capital in the age of Covid
Despite Covid, venture capital activity across the globe remained robust throughout 2020 and deal activity, thus far in 2021, suggests venture capital will continue to fly high this year.
Below we outline Covid winners, challenges and opportunities in ESG within the VC space.
Healthcare and life sciences
- Unsurprisingly, healthcare and life sciences have done particularly well. According to Rock Health, 2020 has seen more digital health funding than any other year with $2.4bn invested each quarter — significantly outperforming the last 2 years’ quarterly average of $2.1bn.
- The US was particularly strong in this sector. Q3’20 hit $36.5bn, a 7-quarter high for VC companies and is an increase of 30% from Q2’20.
- Driving this trend is the consumerisation of healthcare, in the form of on-demand, remote access to doctors, medical products and other related medical services (such as Primary Healthcare company, Kry).
- This sector is a target for investors of all shapes and sizes. Covid has been a healthcare crisis as much as a health crisis and this realisation should continue to stimulate investment into the space. Healthcare is also resilient, as an essential service it is well placed to protect against economic slowdowns.
- The macro trend away from congesting and carbon emitting forms of transport combined with the lockdown fuelled micro trend of anti-Public transport has stimulated investment into e-bike start-ups.
- According to PitchBook, European VCs allocated more ($165m) into e-bikes in 2019 and 2020, than the previous four years combined. Indeed, e-bikes are now becoming more popular than normal bikes in many countries.
- Online shopping has dominated. This is in large part due to changes in consumer behaviour, some of which may have pre-dated Covid-19 but the epidemic has accelerated it.
- Forbes reported that in a year where traditional retailers have struggled; ecommerce has hit a 129% year over year increase in the US. Statistica forecasts that by 2023, 22% of global retail sales will occur online.
- Stay at home start-ups may continue to see success outlast lockdowns as consumers move more into the digital space permanently, Covid merely acting as a catalyst in this larger trend.
- Data from The Gaming Economy shows a total of USD$2.107bn in venture funding, an increase of 942% from Q2.
- This is a trend that is here to stay. Gaming start-ups have a huge a surplus of demand. With VR in its infancy, “gaming and media companies are poised to grow 10x and more consumers are looking for ways to entertain themselves online” - Yuki Kawamura, who was responsible for Netflix content strategy and analysis at launch, and now partner at Akatsuki Entertainment Technology (AET) Fund.
Hospitality, retail, tourism, and live entertainment.
- Short-term challenges have affected sectors built around the proximity of people but some were able to quickly adapt. Burning Man redefined the art of the possible by calling on its dedicated community to build the Burning Man Multiverse to host the festival virtually. The virtual event had over 78,000 attendees, an increase from 70,000 in 2018. The Multiverse was undoubtably a success, virtual experientials are still in their infancy but may be here to stay, watch this space.
- The adoption of ESG among institutional investors has rapidly increased over the last few years but Venture Capital has historically trailed other assets classes in this respect.
- This may be because of a lack of international guidance and ESG standards around issues VC managers may face when deciding where to make an allocation.
- 2021 represents a real opportunity for VC managers to make positive contributions to ESG. We have seen an acceleration of female economic empowerment, the will to tackle climate change and the democratisation of healthcare over the past year. VC managers could drive innovation in these arenas, and they are likely to be rewarded by investors if they do.
05 February 2021 / Insights series