We recently gave a shout out to the billion dollar ventures dominating the startup scene. Of course, most (if not all) of those companies are household names, but there are a surprising number of lesser known startups that are also above, at, or approaching billion dollar valuation. These meteoric valuations are due, in large part, to the current nature of venture capital funding. Firms and investors eagerly scramble to find the next best thing, often ratcheting up the value of businesses that aren't even off of the ground yet.
In many cases, the mere notion that a company has a great idea can garner unbelievable attention from investors hungry for new opportunities, and once a single firm or investor contributes (especially those who saw big gains on prior investments), many others tend to follow suit quickly. Although the venture capital landscape can change swiftly and drastically, the following are recent, noticeable trends that are expected to continue in the near future.
Any investment can be risky, and there is really no way to know for certain the likelihood, timing, or extent of generating a return. Regardless, venture capitalists seem to have rather great expectations when it comes to the businesses they choose to fund. A lot of the positive outlook derives from the success of so many recent ventures and the assumption that somewhat similar endeavors with the right financial backing will replicate those results. Of course, anticipating a certain outcome and the actual realization of it are two completely different things, but it hasn't seemed to deter venture capitalists from expecting the very best.
Innovation Influences Investment (and Valuation)
There may be a bit of recycling former ideas that never quite took off in the past (think same day delivery services), with the second or third attempts faring a bit better than their predecessors (a product of those great expectations). Nonetheless, venture capitalists seem to have made it their mission to discover a diamond in the rough, and the newer and more creative the product or service, the better. Venture capitalists continue to clamor to be a part of bringing the best ideas to market, so as innovation attracts the most venture capital investments, it obviously influences a new business's valuation.
Software Reigns Supreme
Even though innovation is important and pioneering efforts can occur in a number of different spaces, it is evident that software dominates when it comes to acquiring venture capital. Media and entertainment and biotechnology are a close second and third respectively, but both have lagged far behind software in the last two quarters, and it seems unlikely that the distant gap will close anytime soon.