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2022 Lessons in VC and 2023 Predictions and Speculations

By Anishka Prasad – Head of Strategy & Operations – Future VC

2022 has been viewed as an equalizer, the end of overzealous funding or in some instances a dry spell for many sectors and stages of venture capital. According to CrunchBase, the third quarter of 2022 VC funding merely totalled $81 billion. This was approximately 53% ($90 billion) less than in 2021, which essentially signalled to most in the industry that current investing methods and, in some instances beliefs, needed to be recalibrated for 2023.

Lessons from 2022:

  • Founding teams can no longer rely on a theoretical proof of concept to raise seed funding, as was the case in 2020-2021. Investors had shown more interest towards teams that were on their way to securing committed trials from clients, or better yet, revenue generating.

  • Most deals post series B took longer than expected to close and endured rigorous due diligence process engagements by both investors and founding teams.

  • Heightened VC Investor cautiousness at all stages meant funds not being deployed in haste, and record levels of dry powder - ($269 billion through H1 2022) waiting to be deployed once there is more certainty in the market and as valuations stabilized.

  • Female founders backed across UK and Europe still at a record low 2%, despite positive dialogue in the community in efforts to overturn these numbers. Yet, VC funds with female GPs were recorded to have outperformed fundraising predictions.

  • All that’s funded is not a unicorn – the likes of the FTX debacle being a humbling truth serum for mega VCs, and hopefully lessons were learnt around the need of funding teams providing absolute transparency of business operations before capital is deployed.

What does 2023 hold for VC?

  • Most are optimistic, and rely heavily on the school of thought that a recession is the mother of innovation, especially when it comes to technology companies and start-ups. Having tougher competition to secure funding could be a catalyst for more tenacious founders to launch new products that are painkillers and not vitamins.

  • New(er) areas of innovation such as GPT-3 (Generative Pre-Trained Transformer 3) and other Generative AI products, become the new hype yet have inherited “the new product” fatigue from the likes of Crypto, NFTs and Web3 products. This could simply be more of an enabler for tenacious and driven founders in Generative AI to build products that outweigh the hype and create a sustainable industry going forward.

  • Climate tech appears to be at centre stage, as various funds try to accommodate and rearrange their investment thesis and funding rounds to target investments in this area. Current climate change impact, with the recently passed Inflation Reduction Act, will prove to be beneficial for spearheading climate tech and sustainability projects, giving them their long-awaited due in some instances.

  • New year, same economic downturn – amidst an economic downturn, most are encouraged to maintain a positive outlook for better days, and venture is no different. However, a degree of realism is expected by most, indicating that the first 2 quarters of 2023 is more restorative than a pre-ordained bounce back.

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