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Published On: Sun, May 15th, 2016

What will happen this year in venture capital, thoughts from G Scott Paterson and others

Thanks to all the ongoing activity in the tech startup sector, venture capital investment has hit a 15-year high, reaching levels not seen since the dot com boom of 2000.

The first quarter of the year was marked with record-setting VC investment in the United States, which topped $13 billion USD, and continues a trend that began in early 2015.  Investors want to be a part of the ongoing technology boom and remain searching for that next big thing.

One of the sectors that has seen sustained long-term growth is the software market, where VC investments have led for 23 quarters straight. According to the summer 2015 Pricewaterhousecoopers MoneyTree report, The software industry  had a record setting second quarter in 2015, bringing in more VC funding during that period than it had in the last 20 years.

papers files computer laptop Apple

photo/ Seedcamp Singapore 2010

Some of the companies that benefited from the abundance of VC include popular photo messaging service Snapchat, which raised more than $537.6 million USD in VC funding.  HR software developer Zenefits Insurance Services was also a big winner, bringing in roughly $500 million USD.

While both Snapchat and Zenefits had very strong investment growth, Airbnb, raised the most funding, $1.5 billion USD. When paired with the $186 million USD in VC funding Pinterest received, the media and entertainment industry came in second to software in terms of overall investment.

Investors becoming more selective

This large growth in overall VC investment is expected to continue throughout 2016, with one exception. As the start-up sector begins to enter its second phase of evolution, investors are becoming more selective to where they park their money. Gone are the days of a good pitch attracting investment — today savvy investors want to know how their investment will work for them.

“We’ve completely stopped investing in private tech,” said Jeremy Abelson, a portfolio manager at Irving Investors, a New York-based hedge fund. “I’m done with intangible valuations, unknown exits, unknown liquidity, and I want something that if I put my money into it now… I’m going to get something that’s immediately yielding.”

Abelson is not alone in his sentiment.

This selectiveness investors are now displaying is forcing startups to really think through their business model and their process for success before asking for private money.

Although more scrutiny will result in less tech unicorns, it will help weed out the good from the bad in terms of investment potential.

Outlook for Canadian venture capital this year

Canada is also experiencing a VC investment boom, with 2015 records hitting a 10-year high, mainly driven by the booming technology scene. According to the Canadian Venture Capital & Private Equity Association, 2015 funding comprised 536 deals for a total of $2.25-billion CDN.

Canadian venture capitalist and media executive, G. Scott Paterson, thinks strong venture capital investment in Canada’s tech sector will spur on economic growth while the country transitions  from its oil roots.

Canada’s commitment to innovation also makes the country attractive to global investors looking to capitalize on current  trends,  notes G. Scott Paterson.  

Recently Mike Woollatt, chief executive of the Canadian Venture Capital and Private Equity Association, traveled to Silicon Valley where he noted an increasing amount of interest around investing in Canadian companies.

“There’s new VCs coming online at pretty big rates,” Woollatt said. “Our membership numbers are doing this massive climb and a huge portion is venture funds.

Looking at 2015 as an indicator for performance this year VC investors can expect to see better offerings in an overall  less congested sector.

 

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