Investing in 2020: Trends and Strategies for Venture Capitalists (VCs)

August 25 5 min read
venture capital strategies 2020

As the face of business models tends to produce massive shifts during the Covid-19 recession, for angel investors and venture capitalists (VCs) the typical due diligence process stops being enough. In this regard, we’ve prepared a brief and concise overview of key market trends, opportunities and investment strategies which can help VCs successfully navigate the remainder of 2020.

While consumer behavior and the general status quo has shifted to the online, otherwise booming industries such as transportation and travel taking a massive hit, startups have neither disappeared, nor stopped needing investments to innovate. But as many of them pivoted around the needs of their markets, there are a couple of food-for-thought pointers that we will address in this material, specifically to offer VCs a clearer view of the current environment and how to spot the diamonds in the rough.

While you can follow through with our material in its entirety, feel free to also jump at your section of interest:

  1. New Investment Opportunities: The new fields that thrive during the Covid-19 Recession
  2. Investment Trends: Curious cultural trends influencing the startup ecosystem
  3. Investment Strategies: New strategies and business models gaining spotlight
  4. Key Takeaways

New Investment Opportunities: The New Fields That Thrive During The Covid-19 Recession

Telemedicine. This field is slowly becoming the new normal for people seeking medical advice. Venture capital funding for telemedicine companies surged in the first quarter of 2020 to USD 788 million (triple compared to the same period a year before), with telehealth spiking in volume as the COVID-19 pandemic spread.

Prescription delivery. Almost hand in hand with telemedicine, prescription delivery startups see a surge in demand, with startups such as Alto Pharmacy raising over USD 250 million in series D from VC funding this year, according to Crunchbase.

Ecommerce has become one of the most prominent areas where startups have seen a considerable spike in stock value – Shopify’s stock price has reportedly has gone up to USD 1,000 from 25 in June 2020.

Insuretech. In spite of popular belief, in the insuretech sector, direct-to-consumer model investments give way to technology investments that transform and enrich key processes at established insurance providers.

SaaS and remote working tools. TechCrunch reports surges in usage of startup-born remote working tools of up to 524% in China, +1576% in Hong Kong or a whooping +3836% in Vietnam after quarantine measures were imposed.

Education is predicted to become a key area for investors to bet on as digital learning shifted from a being a trend to a crisis necessity in many geographies.

IoT, robotisation, drones and satellites in sanitation. Drones are increasingly being used in sanitation and delivery, with multiple case studies emerging of startups breaking this market by employing drones to disinfect hospitals and other public places.

Online gaming. As people adjusted to work-from-home, the gaming industry got a new polish, with investors seeing new ROI opportunities in the sector worldwide.

Over the top media (OTT) such as online video distributors have seen a considerable boost in popularity. This sector also includes vectors of the subscription economy, which saw substantial increases in attention offered by both from the consumer and VC sides.

Managed office spaces. As the work-from-home paradigm becomes embedded in the professional world, startups began working with commercial real-estate companies for providing cost-efficient, comfortable managed office spaces.

The rise of Direct-to-consumer (D2C). Economists forecast that digitally native brands that started as independent online retailers selling directly to consumers, bypassing big distributors will make it big in the advent of 2020.

Investment Strategies: New Strategies and Business Models Gaining Spotlight

One of the most prominent 2020 investment strategies – especially in the case of angel investors – is diversifying funds by investing in a portfolio of companies, and business owners directly, within diverse silos, according to Forbes. Investment silos refer to industries such as technology, energy/green tech, consumer products, real estate, or life science.

Another conclusion that specialists tend to come at is that early-stage investing seems more resilient. Techcrunch data shows that during the last recession, angel and seed activity increased 34% as interest in the stage boomed during a period of prolonged growth.

Machine learning has been considered the next hidden weapon of VCs to help spot a good investment match. An algorithm can process extremely large volumes of data in order to make recommendations on the viability of a startup.

Key Takeaways

  • Venture capitalists should pay extra attention to those fields gaining strong visibility in the current state of events, such as ecommerce, telemedicine and prescription delivery, insuretech, SaaS, online learning, and remote working tools.
  • Subscription economy and online gaming have boomed in the midst of the quarantine.
  • Startups have pivoted business models in the direct-to-consumer in the context of a continuous rise of ecommerce and shift to the online, while the work-from-home paradigm gave way to a boom in popularity for managed work spaces businesses and remote working tools.
  • Diversifying portfolios and looking for seed and early investments tend to turn profit in the long run.
  • Machine learning and AI can provide algorithms useful when assessing on the investment viability of a startup.