Last year was a year of active investment in AI in the developed markets of the US and Europe. At the same time, large funds and corporations remained in the lead. Speaking to industry professionals, fund representatives, and angel investors helped root out what changes they expect this year, whether these shifts will be significant, and who will set the tone for innovation. Market participants helped identify the five most important venture trends for 2024.
1. Investments in AI Will Remain Relevant
The main trend of 2023 — artificial intelligence — will remain interesting for investments. Although not on the same scale, the AI boom will continue. At the same time, the main flow of investments will go to related industries where artificial intelligence is most applicable.
The AI and MedTech bundle looks promising, as the threat of a new pandemic still persists. A breakthrough is possible at the intersection of AI and HRTech, as corporations are confident to cut budgets and invest in new formats of interaction with employees (the Future of Work concept). The integration of artificial intelligence and blockchain may be interesting if it leads to the creation of so-called “smart contracts” with automatic execution — angel investor and co-founder of the Prosto VC venture club Evgeny Chebotov is convinced of this. He believes this will significantly speed up financial transactions, providing users with more transparent and safe investment tools.
“The development of AI requires improvement and development of the existing infrastructure, so in 2024, startups offering such solutions will be in demand. It is mainly a question of processing power and energy consumption,” says Alexey Dovzhikov, founder of the deal-by-deal VC fund D&P. At the same time, other types of AI “servicing” projects will also get a boost.
2. Startups in Web3, Industry 4.0, and Medicine Will Be on the Wave
Market professionals are still betting on AI, but they won’t stop looking for new areas to invest in. According to PitchBook, in 2023, 82% of all risky investments will accumulate initiatives in IT, healthcare, industry and energy.
The VC community is already noticing fatigue with “classic” industries like SaaS, Fintech, and Martech, which have long been considered win-win strategies. Huge budgets have been invested in projects in these areas. According to a Dealroom report, SaaS investments have accounted for 43-47% of all venture capital in the last three years, and Fintech has accumulated more than $480 billion since 2016. On the one hand, this has allowed successful startups to divide the market, but on the other hand, it has led to disappointment of those investors who did not get the returns they were hoping for..
This year, the trend toward investment in Industry 4.0 is starting. Aleksandr Belov, co-founder of the Prosto VC venture club, believes that this will open up more space for projects in the field of robotization and automation. The trend will be supported by companies’ drive to replace unskilled labor, which is evident from the Dealroom’s reports.
Among the areas in which a breakthrough can be expected in the coming years are personal air transportation, human-computer neurointerfaces, AR glasses/lenses for personal use, quantum computing, artificial general intelligence (AGI), and organ printing. Some experts, notably Andrew Taburinsky, believe that projects in the human capital field, such as HR and productivity, are very promising
The web3 sector will attract investment at the fastest pace in 2024. Web2 and web3 are growing closer to each other every year, while the activity of funders and the success of core startups stimulate new infusions into the industry, especially in solutions that facilitate the mass adoption of crypto-technologies.
The web3 sector will offer new directions in 2024 that have not yet been trending with retail investors. This concerns the tokenization of assets (intellectual property, real estate, and “corporate objects”), as well as projects to implement green standards and so-called “zero-disclosure proof protocols.” In this regard, angel investor Kirill Koshenkov has a positive view of any startups developing cryptography based on Zero-knowledge proof. The global processes of digitalization and CDBC implementation will put them in the spotlight,” the expert believes.
Another “hot” trend of this year is the intersection of fintech and green technologies, where startups can offer innovative solutions for investing in environmental and sustainable development projects. Evgenii Chebotov, angel investor and co-founder of the Prosto VC venture club proves this with the projected 15-20% growth of investments in green technologies by the end of 2024. Chebotov is also betting on startups in healthcare and the Internet of Things (IoT) with solutions based on data collection and analysis for diagnosis and treatment.
Chebotov’s confidence is based on the expectation of an 18% increase in the healthcare-IoT market size in 2024, which will provide opportunities for innovative enterprises. In addition, Chebotov draws attention to the expected 25% growth in educational VR investments in 2024. Education systems are already primed for mass introduction of virtual reality into their practices,” the expert notes.
3. Democratization of the VC Market Through the Development of Venture Communities That Share Risks Among Their Members
At all times, investors found the most interesting projects for risky investments 90% of the time through networking. To enter promising startups, it was necessary to have access to closed communities and develop social capital. It is no exaggeration to say that almost the entire venture capital industry was built on trust, insights, and personal connections. Strong funders built relationships with strong investors behind the scenes. Only 10% of the time could you find a decent deal through scouting or in catalogs, accelerators, and online matching platforms.
In 2024, the situation may change dramatically. The VC market in terms of early stage investment is transforming and the professional environment is becoming more and more democratic. Already any angel investor with a check of $10,000 or more participates in syndicated deals on an equal footing with larger funds, selecting projects they like through venture capital communities. There are virtually no problems with the availability of quality deals for angel investment. With each passing year, the risk investment industry becomes more popular in the best sense of the word.
4. Venture Winter Will Show Signs of Ending
In 2022-2023, the volume of risk contracts decreased.
The end of the venture capital winter is not far off: the “accumulation” stage is coming to an end, and the “participation” stage is beginning. At least, we are talking about a certain “thaw” during which we will see an increase in the volume of deals, the number of which, according to the optimistic scenario, will increase by one and a half times. Such forecasts are connected with the coming of a favorable moment for investments. “At the bottom” is the best time to invest: assets are cheap, startup valuations are low, and only the strongest survive. Entrepreneurial projects that have survived the venture winter have turned into the most desirable objects for investment.
Venture Winter has accomplished its mission of cleansing the market of low-quality startups and stray money. The transition from the “startup era” to the “investor era” has increased the requirements for projects and tightened the selection process. Founders don’t like the fact that the investment funds have started dictating the rules, but there are more people willing to invest today than there is free liquidity. This has held back the growth of many companies, but it has also had a positive impact on the industry as a whole.
5. Investors’ Focus of Attention Will Shift Toward Startups from the Developing Nations
Investors are targeting both individual entrepreneurial initiatives and entire regions where risk capital is concentrated. What are the country trends in venture development today? Are North America and Europe still the leaders in terms of volume and number of deals? Which countries will show particularly rapid growth?
Most of the experts are betting on Asia, as it has surpassed Europe in terms of venture capital volumes in 2023, which is confirmed by Dealroom’s reports. Andrei Taburinsky is confident that this trend will only grow. Alexey Dovzhikov names LATAM, Indonesia, India, and MENA as the main regions where the infrastructure for risky investments will be actively growing in 2024. The expert notes not only the growth in the number of local startups and local funds but also the interest in them on the part of financiers from the US and Europe.
Only some market participants are of the opinion that emerging markets are unlikely to boom this year. For example, according to Aleksandr Belov, it is too early for the Developing Nations to claim to be the hub of venture capital investments due to economic and political reasons, as well as the apparent immaturity of the venture capital infrastructure. The co-founder of Prosto VC expects that North America and Europe will traditionally account for the bulk of venture capital.
