This year, Titanium Ventures is celebrating an exciting milestone – our ten-year anniversary. With a decade under our belt, we thought a great way to mark this occasion was to share what we’ve learned along the way, helpful observations gleaned through our work with ground-breaking entrepreneurs and what we think the future will bring. Venture capitalism has grown and reshaped the investment landscape so much in the last ten years, that it’s exciting to take a thoughtful look at our industry and where it’s headed.
Of course, before we can look ahead and dive deeper into the intricacies of VC, it’s important to look back and understand how the VC landscape has changed since Titanium Ventures came onto the scene. In the next six months, we’ll share our insight for our ten-year anniversary blog series, and would like to kick it off with the big question of: How did we get here?
VC TODAY
Before we unravel all of the ways in which VC got to where it is today, we wanted to paint a picture of what the actual reality of the landscape is. In short, VC is bigger, broader, faster and more diverse. To illustrate this by the numbers, global venture funding hit an all-time high in 2021 at $675B invested – and that’s doubling 2020’s previous all-time high. And deals are crossing borders too, creating more international opportunity, as experts at Stanford have estimated there were 4,666 non-US deals done in 2021 involving US investors, when ten years ago that number barely exceeded 800.
It’s not just the amount of funding and deals happening that’s on the rise, either. The amount of venture capital firms, their size and reach have also grown as well. While we operate with a global focus at Titanium Ventures, it’s interesting to see how this change has manifested in specific countries and regions to illustrate this point. In just the US alone, the number of VC firms is nearly 2,000, which is already double the number of firms that were operating ten years ago in 2010. Ten years ago, Europe had a handful of venture capital funds and around 100 tech investors, whereas now there are thousands of VC professionals today. And this doesn’t just indicate the emergence of larger, more established firms – as angel investing has also taken off. In the ten-year span from 2010 to 2020, the number of angel investors has increased by nearly 70,000 new angel investors, from around 265,000 to just over 334,000. And in just the short span from 2019 to 2020, the number of active investors jumped 3.5%. Even crypto has created investment avenues devoid of regulations to raise, or invest, millions in hours with a simple click of a button. Meaning? There are new markets, new opportunities, and VC knows no boundaries as it accelerates at the onset of 2022. But how did this explosive growth come into play? Let’s dig in.
THE BIG SWINGS
Looking within the vacuum with which VC operates, it’s easy to see the evolution at the ground floor. But more often than not, larger secular trends happening outside of an industry have just as much, if not more, influence for reshaping the future. It should come as no surprise then, that there have been several macro drivers pushing VC into a new era.
Tech Advances
One major driver behind all of this growth – technology. We can thank Amazon for more companies to invest in – or more precisely, Amazon Web Services (AWS), their cloud computing platform. Recent estimates put AWS’ worth around $500 billion dollars, and it’s easy to understand why – it has reshaped the way we do business and given hungry entrepreneurs more cost effective ways to launch a startup. With cheaper, and more accessible, tools at their disposal, more entrepreneurs could turn ideas into reality, and have given VCs significantly more promising young companies to divert their attention and dollars to.
And technology isn’t only shifting the number of startups available to VCs, but how VCs operate themselves. As more business practices are brought online, given the momentous thrust into digitization and the reality of a global pandemic, VCs have had to adapt to moving from boardrooms to computer screens. With the explosion of virtual meetings, meetings can happen faster and more frequently in the absence of travel time and scheduling conflicts – allowing investors to connect with more founders more often and make fast decisions – so much so that deals can now be made in a matter of days versus months. And the reason they can make those fast decisions? Technology, again – or to put a finer point on it: data science.
Data science allows firms to evaluate markets, companies, competition and conduct due diligence more quickly and with greater accuracy to assure their time and capital are being sourced in opportunities with return. And data’s benefits don’t stop there. It’s an invaluable measuring stick for helping companies once brought under a VC’s wing – from helping them identify areas of strength to exploit, areas of improvement to address or analyze strategic hire candidates. In fact, data science anchors much of what we do here at Titanium Ventures, it’s something we’ll explore further in this blog series in more detail.
Becoming More Risk Friendly
Another important trend to note goes even further back than the last ten years, to the last thirty: interest rates. Since the 1990’s, interest rates have been on a steady decline, on average decreasing around 3% every decade. This has opened a gateway for allocating capital for riskier asset markets, namely private markets. So now, there are more private companies, and more money to fund them, creating a cross-section that offers investors incredible new possibilities.
Windfall from the JOBS Act
In 2012, the JOBS Act went into effect, which gave small businesses easier access to funding by relaxing numerous securities regulations. In the ten years since its inception, there has been a significant domino effect on the investing community. Namely, companies are staying private longer. The impact of this is an increased, and more fervent, investment environment. As companies shirk plans to go public for longer, their need for more capital grows not just in size, but in frequency. As a result, we’re seeing companies enter funding rounds more often, and faster, typically every 12-18 months versus every three years, providing significantly more opportunity for inventors.
AN AGGRESSIVE LANDSCAPE
As we’ve seen the increase in cash flow and opportunities, another factor of VC has also increased – how competitive it is. Now, with almost boundless possibilities, it’s grown immensely more difficult for VCs to stand out and win the deals with the best returns, forcing them to adapt in many ways.
Pitching in Reverse
With so much expanding promise, the VC landscape has also undergone significant change in how it conducts itself. First and foremost, may be the bedrock on which it operates – the pitching process. Legacy venture capitalism was founded on the flow of entrepreneurs bringing ideas to investor tables for consideration. In recent years, those tables have turned and set investors on a much more proactive path. Instead of relying on entrepreneurs to win them over, investors are actively seeking out entrepreneurs and pitching themselves. As the amount of VC firms and participants has grown, it has also gotten increasingly competitive, forcing investors to abandon passive practices and seek out opportunities before someone else does.
A Face to the Name
This in no doubt is related to another significant change we’ve seen from the VC community – a more pronounced public profile. Be it through marketing initiatives or social media platforms, VC firms and investors are making themselves and successes more widely known. As they compete with one another for winning investment opportunities, they need to make themselves and expertise more discoverable and build credibility. As the world becomes increasingly more digital, content is king – and maintaining a presence outside of a boardroom is no longer a complement to in-person interaction, it’s necessary. This can be demonstrated in a myriad of ways, from traditional mediums like corporate blogs and third-party bylined articles, to producing and sharing insightful podcasts or video content, or being more active and engaging on social media. By showcasing a firm’s leaders and expertise, it doesn’t only help build trust, but may also attract new leads. These past two years as we’ve undergone a pandemic may be the best example of this. While we’ve had to largely hit pause on meeting and networking face-to-face, we moved these activities almost entirely online. And while relationships are also a key ingredient to how the VC industry operates, they’ll need to extend to the computer screen.
Value Beyond Money
In addition to executives and investors making themselves more distinguishable via social media and thought leadership opportunities, firms have also had to bring more to the table besides capital. The most successful firms work hand-in-hand with their portfolio companies, assisting with everything from marketing to strategic hires – becoming more of an interested partner, than an invested backer. Now, aside from simply cutting checks, many firms offer a la carte services to help spur the growth and changes needed to see their investments succeed.
A Moral Compass
Finally, business reputation has become much more than a balance sheet. A firm’s worth is no longer measured by financial success, but also social responsibility. The ESG – the environmental, social and corporate governance – profile of a VC has become an increasingly important factor for entrepreneurs when deciding who they should work with, as well as showcasing the firm’s overall commitment to larger issues. As brands further build their reputation on the causes they support and cultures they create, ESG practices of anyone they’re associated with carry significant weight – including their investment community. And for VC firms – there is even greater attention on how they invest their dollars and support big ideas that are eco or socially conscious, and then maximizing those drivers once a company is under their portfolio. In fact, in 2020, ESG principles captured $51.1 billion of net new money from investors, which was double from the year prior.
AN INDUSTRY ON FIRE
The VC Industry continues to be an exciting and ever-evolving space. Given the shifts outlined above, from macro trends to advancements in technology, VC has embarked on some of its most ambitious patterns yet – bigger rounds, bigger valuations and bigger public companies. According to Pitchbook, the median early stage round size jumped to $10 million in 2021, increasing nearly a third from the $7 million the year prior. In fact, in the same research, seed, early stage and late stage deal sizes are all climbing, increasing two-fold or more since 2012. And valuations? Those were up 50% at $96 million in the first half of 2021 from the end of 2020. In fact, companies are scaling so rapidly that there are now more unicorns than ever before – to the tune of nearly 1000 unicorns globally in 2021. To illustrate this massive growth, let’s look at a few countries specifically. When the term was coined in 2013, there were only 39 in the US, but by late October of 2021, there were already 264. In 2021, India also doubled its unicorn count in a single year – reaching 80 total, 44 of which were added that year – and China added an impressive 74 last year. In fact, 170 cities across the globe are home to at least one unicorn.
It’s an inspiring and thrilling time for investors, and as 2022 unfolds, we’re excited to see where VC is going to go next. Stick with us for the next few months as we offer our predictions and offer more pointed insights about nuances within the industry.