The world of Venture Capital has changed dramatically, both for investors and start ups alike. Over the past 10 years we have seen unprecedented levels of new start-ups entering the market, along with new investors and firms diverting significant portions of their portfolios into these start-ups with the hopes of investing early in the next “Uber”.
However, along with the increase in the number of players in the market, we are also seeing some new challenges that come along with rapid growth and increased volume.
Challenge # 1 – Filtering
In Australia alone, we have seen approximately 10,000 to 15,000 new start- ups enter the market, across a wider spectrum of products, services and industries. One industry however, that has seen more growth than any other is that of technology. This explosion of software, hardware, artificial intelligence and augmented reality innovations has lead to a genuine problem for investors in being able to adequately assess each opportunity and make good investment decisions in line with their objectives and risk profiles. VC’s are now faced with an absolute glut of potential opportunities and filtering these to find the diamonds amongst the coal is going to continue to be a significant challenge.
Challenge # 2 – Getting In First
With the increasing popularity of crowdfunding investment platforms such as Go Fund Me or AngelList, traditional venture capitalists are facing increased competition. These sites allow new businesses to go to market and find a host of different types of investors who are willing to invest at a granular level, often for much less equity than would be sought by a VC. The other problem, is that a new start-up in 2020 has an exponentially higher number of options when it comes to raising funds than they would have had 10 years ago. This is leading to start-up entrepreneurs thinking that a higher volume of individual interested investors equates to a higher valuation of their business. This also means that if a new product, idea or business is genuinely exciting, a VC firm is rarely the first to the negotiation table with these businesses and as such is probably one of a multitude of options for them to consider.
Challenge # 3 – Raising Funds
Just like start-ups, Venture Capitalists have their own challenges in raising funds, and proving solid investment outcomes. Like most industries, investor sentiments and risk acceptance is highly volatile and dependant on a huge number of uncontrollable factors. Economic stability, political climate, investment trends and media coverage are just a few of the factors that affect the difficulty a VC will face in building a solid group of investors. In addition to this, the number of VC Firms has sharply increased in recent years, leading to a decentralisation of what used to be an industry dominated by a handful of key players. VC Firms, especially smaller ones will continue to be challenged by these volatile factors.
In summary, the landscape of the Venture Capital has changed dramatically, and along with this change has come some new challenges that need to be considered and planned for. However, new technology specifically designed to help the VC industry is starting to emerge, and is making it easier to navigate an increasingly noisy and complex ecosystem of investors and start-ups. Hamster is a new platform that has been developed with artificial intelligence algorithms to match start ups and investors through a number of key identifiers and metrics.