Today, technology is advancing at an incredible speed, and we are seeing things that once seemed to be left to science fiction. When we have these periods of significant technological advancement, investors take notice. So, where are investors deciding to put their money when it comes to emerging technologies?
Pitchbook is out with their Emerging Tech Indicator* (you can download the full report here), looking at the technologies that the top ten percent (10%) of venture capital investors are pursuing, and drilling down into how those investors are allocating their capital. Below, we take a look at the data behind the startups receiving funding.
First, as was expected, deal values decreased in Q4 of 2022, dropping 26% from Q3 of that year. The 130 deals in Q4 totaled $3.53 billion, down from $4.83 billion in Q3. While this was the fourth quarter in a row to show a decline in ETI investment, they do point out that “ETI deal value still accounted for 11.6% of all seed- and early-stage VC investment, which is higher than the historical average of around 10%.” This means, investors are still interested in these emerging technologies, particularly in some specific verticals.
In terms of specific areas of investment, biotech and artificial intelligence/machine learning (AI & ML) lead ETI investment in Q4 2022. The biotech sector saw $455.7 million in investment, with AI & ML right behind at $401.9 million invested. Investors were still looking to invest in data tech and health & wellness tech, coming in at $376.4 million and $292 million respectively, and the fintech sector saw $172.4 million in investment. This was all in Q4, but as they look at the past 12 months overall, biotech still led the pack with Web3 and DeFi following, so these are still active areas for investors.
There were some areas where deal count jumped from Q3 to Q4, including ecommerce and AI & ML. In fact, AI & ML represented the largest deal numbers and the second largest dollars invested in Q4. This investment in AI & ML is being fueled by generative AI which is really piquing the interest of investors and consumers. This is not likely to slow down as the buzz around this technology continues to grow, and consumers seem to be ready to adopt this technology in a variety of ways. You can see our previous blog post on the flurry of investment in generative AI here.
Despite the overall downward trend in investment right now, there are definitely areas where investors see promise in some incredible technological advancements. Keep an eye specifically on what happens in the area of AI & ML as investors continue to bet on these as game changing technologies.
Meanwhile, in an interview with The Information reporter Kate Clark last week at the Upfront conference in Los Angeles, Silicon Valley Bank CEO Greg Becker suggested that venture funding will improve later this year (though it's not all “rainbows and unicorns,”) and then rebound to 2018-2019 levels next year.
*“The Emerging Tech Indicator provides a quarterly review of seed- and early-stage investment activity involving a limited subset of the world's most successful VC firms that account for roughly 10% of total VC investment. The analysis provides a unique perspective into the types of technologies top investors view as the most promising, while also tracking how aggressively they are making capital allocation decisions.”
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