Venture Capital

For a long time, the venture capital industry experienced strong growth, but in recent years there has been a decrease in fundraising, IPOSs, and exits, and venture capitalists continue to be cautious regarding large deals due to the dearth of exit opportunities. “In addition to scrutinizing potential deals more heavily, VC investors also show less willingness to provide bridge funding to their existing portfolio companies, driving startups to increase their focus on cost cutting and achieving profitability,” according to the professional services firm KPMG.

Some of the factors that have played a role in the venture capital industry slump include high interest rates, inflation, geopolitical tensions, the fallout from various banking crises, new government regulations, and increasing industry competition. “The 51,000 VC companies tracked by Preqin may find financing harder to come by [and] only the strongest and most innovative companies will be left standing amid the smoldering wildfire, and these are the ones most likely to receive financing,” according to the Wellington Management Company LLP’s 2024 Alternative Investment Outlook. The report goes on to say that “ultimately, VC portfolios should see an exceptionally strong vintage, as less competition means a higher likelihood of investing in top companies at reasonable valuations. To be sure, managers will need to be discerning with their investments, as risks do remain.”

Although the venture capital industry is in a transition phase, there will continue to be a need for skilled financial, business, and support professionals. One fast-growing career is that of financial analyst (although they may be known as “analysts” or “associates” in the VC industry). Job opportunities for analysts are expected to grow by 8 percent from 2022 to 2032, according to the U.S. Department of Labor, or faster than the average for all careers. Employment for analysts who work with funds, trusts, and other financial vehicles will increase by 23.4 percent during this same time span. This is much faster than the average for all occupations. Job opportunities for financial risk specialists who are employed by funds, trusts, and other financial vehicles will increase by 17.9 percent. Other fast-growing careers include those in accounting/compliance, data analytics/warehousing/analysis, computer security, and marketing.

Although demand continues for experienced VC professionals, it’s important to remember that the industry remains small and very difficult to break into (especially for recent college graduates with little or no operational or deal-making experience). Aspiring venture capitalists are advised to earn an MBA, obtain several years of experience in related industries (e.g., private equity, investment banking), and develop a strong professional network in order to increase their chances of landing a job.

HubSpot for Startups reports that trending industries and hot sectors for venture capital funding include defense technology, AI and blockchain, fintech, space technology, sustainable solutions, and biotechnology. Other areas that are seeing interest include fintech, augmented reality, foodtech, dentaltech, green energy, self-driving vehicles, and home automation. In the health care field, VC firms are increasing funding to startups that are developing telemedicine (including remote patient monitoring), mental health, and supply chain management apps, as well as medical robots, vaccines, antivirals, antibacterials, and disease testing and respiratory care and therapy equipment. Here are a few other organization’s predictions of hot sectors and industries for funding by venture capitalists (other than AI, which tops almost every list):

• Wellington Management Company LLP: biotechnology, climate technology, consumer discretionary (with direct-to-consumer models challenging incumbents), health care (with updated approaches to employee benefits and mental health), and financial services (e.g., expense management, cross-border money transfers)
• Wilmer Cutler Pickering Hale and Dorr LLP: robotics, automation, life sciences (e.g., cell therapy, gene therapy, precision medicine), and agtech and climate tech (especially companies that aid the economic transition away from fossil fuels)
• KPMG: quantum computing, cleantech, and companies that provide solutions to improve the efficiency of law, real estate, and financial services firms
• Foley & Lardner LLP: sustainability and clean tech, health tech and digital health solutions, ecommerce and direct-to-consumer brands, fintech

Although fundraising for tech (especially software) startups continues to exceed other industries, some industry watchers fear a repeat of the 2000 dot-com crash, during which many tech startups became overhyped and overvalued (before falling flat after the IPOs), resulting in many dot-coms folding, others losing a large portion of their market capitalization, and still others riding out the storm and bouncing back. The dot-com crash not only had a negative effect on the tech industry, but also on the entire U.S. economy. Industry experts acknowledge the possibility of a dot-com bubble, but believe that the potential crash will be nothing like the one in 2000 because many VC-backed companies currently going public (or about to) are more mature and better equipped to grow and perform well in the free market. Additionally, the amount of financing required to start and scale businesses has changed in some sectors. “Advances such as cloud computing and open-source software have enabled technology startups to commence and grow their operations with less funding than historically required, while launching life sciences companies and AI-driven companies can remain a capital-intensive process,” according to the 2024 Venture Capital Report, from Wilmer Cutler Pickering Hale and Dorr LLP.