2018 saw a huge increase in the number of venture capitalists (VC) funding rounds for technology start-ups.
And it’s a trend that’s set to continue.
Globally, Quarter 3 of 2018 was the most active for VCs on record and each funding round is getting bigger. According to Crunchbase, while the time in between deals is largely unchanged, VCs are investing more capital per round, notably at seed and early stage.
Today, tech brands are also considered less capital efficient, requiring more rapid injections of capital, but that is symptomatic of the fast paced, digitized world that we are living in – and the pace of technological change is accelerating.
The rise of ‘Supergiant’ VC rounds
The rise in funding rounds is accompanied by the emergence of what are described as ‘supergiant’ VC rounds – investments of $100 million or more. Where recently just one of these deals would make headline news, they are now becoming more commonplace.
What’s more, $100 million+ VC rounds were responsible for the majority of the venture capital raised for tech start-ups in the last quarter of 2018.. Japanese conglomerate SoftBank emerged as the biggest VC in tech globally in 2018, disrupting the sector with investments starting at $100 million. Its Vision Fund is backed by brands including Apple.
More funding rounds, more diversity
Reliance on digital devices and services is driving growth in every sector and more funding rounds means tech entrepreneurs are securing capital for a diverse range of start-ups.
Softbank has plowed capital into start-ups including online lender SoFi, food delivery business DoorDash, e-commerce start-up Brandless and a robot pizza maker, Zume. At the other end of the investment scale, good things are predicted for Silicon Valley tech start-ups including, among others, Nurx, a birth control app, cloud based shipping software company Shippo and biotech company Biome.
These Supergiant investments from VCs such as SoftBank also have a ripple effect, resulting in more traditional VCs increasing their investments to compete. Offering larger amounts of capital is seen as a competitive advantage and an opportunity to invest in the most promising companies. And while seed and early stage funding often represent smaller levels of investment, they often lead to further funding as the business expands.
A further growing sector is PropTech. While the PropTech VC world is still fairly small it consists of major investors - including Softbank - and has experienced significant growth in the past few years with several ‘proptech only’ funds emerging. Crunchbase also highlights the electric scooter sector as one drawing attention from investors.
The tech talent hiring challenge
The global increased spend on IT combined with increasingly diverse start-ups, is adding to the huge demand for talent with specialist tech skills.
Unemployment in the sector hovered at around 1.9% or below in 2018, making high end, niche talent more difficult to source and on the receiving end of competing job offers. Add to that the need for tech start-ups to scale earlier on in their lifecycle, placing further pressure on hiring processes.
The gig economy is also opening up opportunities for both employers and talent to capitalize on the opportunities of this booming market. Just over one third of the workforce is contract or freelance based and predictions suggests that freelance workers will outnumber non-freelancers in the US by around three million by 2027.
Hiring contract workers can help to build a scalable team to meet fluctuations in demand around product launches or IT security projects – and it provides a path for VC funded tech start-ups to ensure more affordable access to the talent they need.
Will the VC tech bubble burst?
With the market flooded with capital, some predictions suggest an imminent bursting of the tech bubble, comparing it to the 2000 dotcom collapse - but others argue that today’s tech-driven funding is more robust.
2019 is just beginning but tech start-ups remain the investment of choice for today’s VCs.
If you want to learn more about opportunities in this space, or are an organization hoping to secure this hard to source talent, get in touch with a specialist in the Glocomms team today.