Venture capital (VC) firms are often regarded as the holy grail of startup financiers. But what do venture capitalists want? For entrepreneurs in search of funding, this is the perennial question.
In 2015, the world saw a record high of venture capital investments, with total deals topping $100 billion, according to a report by auditing giant KPMG and data clearinghouse CB Insights. Dominating the investment marketplace were internet companies, which obviously won’t go out of style any time soon; the same goes for tech, mobile, telecom, health care, financial, education and consumer startups.
So what will be hot next? We asked some leading VCs to put their money where their mouths were, filling us in on the sectors that excite them most -- and those likely to score major financing in the months and years ahead.
When most people think of virtual reality, they think of 3-D gaming or Oculus VR, the maker of headsets that Facebook acquired for $2 billion in 2014. But that’s just the tip of the virtual iceberg, says Ted Leonsis, a founder and partner at Revolution Growth, a Washington, DC-based investment firm.
Leonsis expects the VR market to explode with training products for education, sports, and the military. In 2015, he announced a partnership between VR startup STRIVR and three DC-area pro sports teams he owns: the Capitals, the Wizards and the Mystics. The idea is for these NHL, NBA and WNBA teams to incorporate 3-D training into their game preparation.
Training programs that feature audio and video lessons have about a 50 percent retention rate, Leonsis explains. “But virtual reality takes retention levels to well over 90 percent,” he says.
Brian Wilcove, a partner at Artiman Ventures, an early-stage venture fund in Silicon Valley, seconds this prediction. His firm invested in zSpace, which makes an all-in-one VR solution for the education market -- complete with glasses and stylus -- that tens of thousands of U.S. students already use. Think high schoolers dissecting 3-D holographic frogs in biology class, or med students watching a virtual open-heart surgery.
As the market evolves, Wilcove says he can imagine a communications app for far-flung business meetings “where you’re all virtually sitting around the table in different locations with one of these headsets on, James Bond–style.”
Take corporate and consumer concerns about data integrity, add ongoing developments in mobile and cloud technology and you get a scorching market.
“The sophistication of the bad guys has increased,” says Theresia Gouw, cofounder and managing partner of Aspect Ventures, a San Francisco VC firm. “That, coupled with massive change in technology infrastructure, is creating huge opportunity.”
Consider Exabeam, a big-data security company that’s raised $35 million in financing, including contributions from Aspect Ventures. The company employs user-behavior analytics to detect cyberattacks that rely on stolen credentials. According to Gouw, who’s been investing in security companies for 15 years, “Most of the big hacks that you’ve read about, everything from the Sony hack to the Target hack, are bad guys getting users’ credentials.”
Sean Flynn, managing director of Shasta Ventures, a Silicon Valley VC firm, gets excited about mobile security, especially with so many employees using their own devices at work. In early 2015, Shasta contributed to an $8 million investment round in Skycure, a solution that protects bring-your-own and employer-issued mobile devices in the workplace from internal and external security threats. “We think that most enterprises are quite exposed,” Flynn says. “And we feel like that’s a really big opportunity.”
Startups that focus on quality assurance and smooth transactions are the name of the game, says Flynn, whose company invested in Turo, a national peer-to-peer car-rental platform. Turo screens renters, provides various levels of insurance and offers 24/7 roadside assistance.
Maha Ibrahim, general partner at global VC firm Canaan Partners, expects on-demand startups to add more premium, white-glove services in the near future. As an example, she points to onefinestay, an Airbnb for upscale homes that vets listings and offers concierge services. Another example from Canaan’s portfolio: the RealReal, a luxury-brand consignment platform that vets all goods listed on the site, provides high-end photos of them and ships them to buyers.
“It’s a way of capturing more money from that premium user,” says Ibrahim, who expects the trend to proliferate throughout the travel, fashion, and food-delivery sectors.
Consumer health care
Technology companies that make medical treatment more efficient for patients are another good bet. Shasta Ventures has invested in Doctor On Demand, which lets users consult board-certified physicians, psychologists and lactation consultants over video call.
Also hot right now: wellness platforms that doctors, insurers and employers can offer their patients and employees to help them stay healthy or recover from a medical setback.
Sharon Vosmek, CEO of Astia, a San Francisco-based nonprofit dedicated to identifying and promoting women as high-growth entrepreneurs, sees innovations in traditionally underfunded areas, like women’s health and reproductive health, as a growing market. Astia Angels, a global network of angel investors, backs select Astia companies.
“We plan to double down on those companies that actually understand that the female health-care market is a large and expanding market,” Vosmek says. A few examples from the Astia Angels portfolio: nVision Medical, a medical device startup tackling female infertility, and Naya Health, which makes a smart breast pump for nursing mothers.
Services for the underserved
It’s become smart business to develop education, employment and lending workarounds. “People are looking for alternative ways to get the type of education they need in order to get the kind of jobs they want,” says William Crowder of the Comcast Ventures Catalyst Fund, the telecom giant’s $20 million New York-based venture fund for early-stage tech startups led by minority entrepreneurs. As an example, Crowder points to Catalyst Fund portfolio company Quad Learning, which works with community colleges to offer affordable education for students earning a bachelor’s degree.
Dan Levitan, co-founder and general partner of Maveron, a consumer-only VC firm based in Seattle and San Francisco, shares these sentiments. “We think that the whole jobs market and ‘How do you get liberal arts people jobs?’ is a very big idea,” he says. Besides investing in educational startups Koru and General Assembly, Maveron has championed Earnest, an online lender that offers low-interest personal loans and student loan refinancing to fiscally responsible borrowers.
Robotics and drones
Robotic toys and vacuum cleaners may be all the rage, but Shasta Ventures is more enthused about robots for enterprise. “You can build really functional products that make companies much more efficient,” Flynn says. Fetch Robotics, one of Shasta’s portfolio companies, has a suite of robots for warehouses that enables businesses to pack and ship products in a more streamlined way.
Then there are drones. Although they’ve been touted as a solution for delivering items from ecommerce companies, regulatory concerns persist. Other applications are likely to gain ground first. “I think we’ll see a first wave of drone companies targeting image applications, whether that’s taking pictures of houses or surveying land,” says Artiman’s Wilcove. His fund has looked at a couple dozen drone startup deals in the past year. Other possible uses: monitoring bridges, cell towers and dangerous locations.