Five venture capital trends for start-ups to follow in 2022

For Dave Rosenberg, VC investment in start-ups will be all about embedded AI, challenger brands and clean technology

In 2021 the overriding theme in business was a commitment to growth. Organisations of all stripes were under pressure, but unafraid to adapt and become better prepared for future change as a result. Recent data showed that venture capital (VC) firms and start-ups responded in kind, with the UK startup scene receiving more than $100bn of venture capital in 2021, three times the level of 2020. So what will the venture capital trends for 2022 be?

There are indications still that 2022 will again be a year of opportunity — particularly for start-ups and fast-growth businesses seeking backing from VCs. Global trends such as climate change, sustainability, hybrid working, and decentralisation open the door for businesses with disruptive ideas and products — and give VCs the returns they seek.

‘Fundraising is about telling a story and giving investors soundbites that pique their interest’

The prospects are strong for businesses seeking investment. Here are five venture capital trends to follow closely in the coming year.

#1 – Start-ups with practical AI will stand out

It’s true that every passing year appears to be hailed as the year of AI start-ups. So why will 2022 be any different? AI has become a catch-all term, bordering on a buzzword, but we’re more likely to see the practical application of AI in 2022 that will appeal to investors.

AI will be increasingly being woven into the fabric of business platforms, as AI-enabled start-ups deliver new integrations that can learn faster and give better results. While applications in autonomous cars may well grab the headlines, it’s the businesses integrating AI into core aspects of the economy like warehousing, distribution and retail that will really stand out to VCs.

>See also: Tech start-ups in London raise record $26bn in funding in 2021

#2 – Cleantech will be more attractive than ever

Thanks to the awareness generated from COP26, the themes of climate change and environmental sustainability remain ingrained in our collective consciousness — along with an attraction to green technologies that will pave the way to achieving ambitious net zero emissions targets.

At the summit, more than 40 world leaders committed to collaborate to “turbo-charge the uptake of clean technologies”. The UK Government, for example, is prioritising investment in green, clean innovation to spur on sustainable economic growth and job creation.

Climate change and green efforts have long been an interest area for VCs but have also been notoriously difficult to monetise. As awareness of the value of cleantech continues to grow in 2022, we’ll see innovators in sustainability and cleantech attracting real attention — and investment.

>See also: Tory peer Lord Wei calls for tax breaks for green VC funds

#3 – Get ready for the rise of the fractional CFO

Success in attracting VC funding lies on a foundation of financial management that delivers accuracy, visibility, and efficiency. Investors need to know that beyond a great idea there is a solid business.

Throughout 2022, we should expect to see heightened demand for fractional CFOs, as agile start-ups bring in finance experts to support their growth and investment plans on a part-time, retainer or contractual basis.

The role of the CFO took on new levels of significance during the pandemic as companies realised how important it is to proactively understand and manage their finances. The businesses that demonstrate a strategic approach to financial management will spark enthusiasm and interest from VCs looking for low-risk, high-reward opportunities.

#4 – Smart operations are non-negotiable

The pandemic exposed the operational weaknesses in many organisations, for example in supply chains, whether that was getting food to supermarkets, consumer goods to doorsteps, or chips to manufacturing plants.

Operational resilience and efficiency will be a critical aspect for VCs when evaluating business viability in 2022. We’ll start-ups driving a new wave of innovation to tackle the prominent trends that impact today’s operations, such as traceability, sustainability, same-day delivery and increased decentralisation.

These start-ups, pioneering ever smarter and more resilient internal processes, will be the ones that stand out as the most attractive option for VCs. The lessons of the pandemic were hard-won, and the businesses that adapt will leave the competition behind.

#5 – VCs will seek out challenger brands

The competition for funding is always fierce. In the last few years, it’s been due to a large number of venture capital firms following the same trends and looking to invest in the same companies.

Moving into 2022, we can expect to see more pivoting away from the “obvious” and investors searching for new markets and business models. In 2021, fintech and AI were arguably the biggest standouts, but the next 12 months have the potential for new companies to challenge the norm — and with new funds available for riding the wave of re-invention, it’s all to play for.

In 2022 we’ll be seeing significantly more interest in businesses that can optimise the pressure points that held us back during the pandemic, such as supply chains, and also those who challenge convention, whether that’s in how we shop, work or run our households.

Venture capital trends

In 2021 we saw record-breaking numbers of new unicorns and a seemingly exponential investment pace. It’s great news for entrepreneurs and growing businesses but competition for VC interest is as difficult as it’s even been.

Fundraising is about telling a story and giving investors soundbites that pique their interest, then making sure your ideas stack up through the due diligence process. So, keep a close eye on the trends of 2022, but hold fast to the business fundamentals. Ultimately, when it comes to securing VC funding, there is no substitute for a solid business plan.

Dave Rosenberg is head of marketing EMEA at Oracle NetSuite

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Dave Rosenberg

Dave Rosenberg

Dave Rosenberg is head of marketing EMEA at Oracle NetSuite.

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