Over the last year, we’ve seen investors search far and wide for good investment opportunities, especially with rising inflation.
Some have turned to unproven, risky asset classes (e.g. cryptocurrency), whereas others avoided such volatility through longer-term investing, and some chose to hold cash and wait.
This year, the main trends will feature ongoing attempts to beat inflation and counter other financial challenges.
Here are a few things that could influence 2023’s investment landscape.
The age of the new LP
In 2023, we will see increased demand for venture capital from a wider range of LP profiles, likely leading to greater access to the asset class, as funds open up and investment platforms look to bridge this divide.
There is also rising investor demand around ESG.
VC funds are already paying attention to how their portfolio impacts ESG, but most are yet to consider factors within their LP base, such as gender and socioeconomic diversity.
Over the last few years, we have all been looking at where the money is going; in 2023, we will increasingly look at where it has come from.
A flight to quality
It is likely that 2023 will be the year of the ‘proven’ fund rather than the ‘first-time’ fund.
Individuals are more likely to add established fund managers, rather than looking to brand new funds that have little to no track record.
Where niche sectors are explored, there will likely be a secondary interest, for example the increasing popularity of climate tech funds.
Investors will look closely at what has been done in the past to get an idea of a fund’s credibility in the sector that they work in.
Good companies will still be funded
There will still be good companies emerging this year.
Good ideas, with strong teams, will still be funded.
Valuations may be more conservative, but expert investors will continue to allocate funds when they find a company with a promising trajectory.
There may be an industry shift away from more speculative, longer-term investments (e.g. funding technology that is still five or more years away from commercialisation), although some investors will always look to ideas like this, where they believe there is sufficient upside.
Overall, we can be sure that money will continue to flow as long as new and creative businesses are founded.
Rising from the ashes
Throughout this year, we will see a cohort of businesses rise out of the ashes of those less successful in 2022, as well as those built out of adversity or more challenging scenarios.
It has happened before. Companies such as Uber and Airbnb were founded during the 2008 global financial crisis.
Although it may seem like a bad time to start a business, history shows us that the opposite may in fact be the truth.
We may already have begun to witness the beginning of this trend.
Following the widespread redundancies within big US tech companies, it is likely we will see an emergence of strong, venture-backed founders spinning out of these businesses who are prepared to establish the next wave of emerging tech superstars.
Be greedy when others are fearful, and fearful when others are greedy.
The emergence of vintage funds
Investments made this year, while valuations are down, could result in greater financial returns.
While these might not surface for at least another five or seven years, valuations will likely have gone up by then as the cycle continues.
So, if you are getting lower valuations today, that may be an advantage in the long run, meaning we could see 2023 emerge as a particularly strong vintage for venture capital funds.
Jonny Blausten is founder and CEO at Sprout