2018´s Industry Recap and 2019 hottest industries for Venture Capital

2018 was a historical year. Last year saw the highest level of venture capital funding since 2000, the last year of the dot-com bubble.

According to data published by PitchBook and the National Venture Capital Association, Venture Capital firms spread roughly U$S 131 Bn. across 8.949 deals.
The previous record was a $100 million total notched in the year 2000.

More than a half of the total capital invested came from U$S 50 M (or more) deals. This boosted the average deal size and valuations across every investment stage and series last year. But because venture investors are paying so much up front, it’s becoming harder to profit.

382 fundings were U$S 100 M (or more) “megarounds,” up from 266 in 2017, with 184 of those coming from the U.S.
In terms of “unicorns,” companies with a valuation of at least U$S 1 Bn., the U.S. saw the creation of 53 new ones in 2018 versus 29 in 2017.
The fourth quarter alone saw 21 “unicorn births,” the highest ever recorded in a single quarter.

Venture capital investments in Asia rose 42% in 2018 versus 2017 with an 11% increase in the amount of money invested. Asia broke records with a 35% in “megarounds”, to 162, and a 60% jump in the creation of unicorns, with 40 coming of age during the year.

California, Massachusetts, and New York continue their dominance of venture investment activity, attracting 79% of total U.S. capital invested and 53% of the number of U.S. deals completed last year.
VC funding in the San Francisco region jumped 55%, to U$S 28 Bn., and New York funding reached U$S 13 Bn.
Venture Capital firms and investors point to increasing operating costs and higher valuations in those three states, signaling optimism for more investment in emerging ecosystems, which also have the benefits of a growing talent pool, maturing networks and ecosystems, and more favorable pricing.

VC Trends

Artificial intelligence, digital health and financial technology companies led the investment portfolios, with AI-related funding jumping 72%, to U$S 9.3 Bn.

Software continues to eat the world but life science activity has seen significant growth.
More than U$S 23 Bn. was invested across 1,308 deals in life science startups, a record high for both metrics.
Healthtech drew a significant portion of angel/seed investing in 2018Q4, highlighting investor interest in funding groundbreaking technologies to meet some of the biggest challenges and opportunities in the sector.

The Unicorn Movies — Biggest ROIs vs Biggest Winners

There are lot of players involved in the film industry such as film production companies, film studios, animation, screenwriting, distribution; and of course actors, directors, and other film crew personnel.

All of them make a global industry that shows projections for the coming years from about USD 38 Bn. in 2016 to USD 50 bn. in 2020.

But when it comes to thinking about the earnings of the industry, all of us think about the best sellers or the box office grosses or what its also known as The Billion-Dollar Film Club.

And of course we will find in that list the following top 5:

Avatar — Worldwide Gross: USD 2,787,965,087
Titanic — Worldwide Gross: USD 2,187,463,944
Star Wars: The Force Awakens — Worldwide Gross: USD 2,068,223,624
Jurassic World — Worldwide Gross: USD 1,671,713,208
The Avengers — Worldwide Gross: USD 1,518,812,988

But when we check the ROI of these movies, we can see that Avatar had a total production budget of $ 425.000.000.- which means a 556% ROI. A huge return for the investors and everyone who bet on the James Cameron project.

When it comes to the most profitable movies, based on Return on Investment (ROI), none of the previous list made it to the following one.

If we think of them as an asset class, film would appear to be uncorrelated to the other types of investments and somewhat recession resistant as people still go to the movies.

As any other investment, diversification is a key part. Invest in a portfolio of films, rather than a single production. Through diversification comes a more proper balance of risk and return.

The film industry only confirms the great quote by George Soros:

Money is made by discounting the obvious and betting on the unexpected.

New Unicorn Wannabe

A number of Venture Capital (VC) investors are predicting 2017 to be the year when a large amount of money will flow into startups, especially if those startups have the opportunity to become “Unicorns”. Although, 2016 was not the best year for the startups as 70 percent reduction was observed in the companies that made it to unicorn status, 2017 seems quite promising.

For example, a number of VC firms, including Founders Fund and Andreessen Horowitz, managed to raise around $40.6 billion – a huge sum of capital needing to be deployed.

Rising Trend of Unicorn Companies

A rising number of unicorns from different industries have made it big.

Uber – Transportation service
Xiaomi – Consumer electronic
Airbnb -Lodging services
Snapchat – Social media
SpaceX – Aerospace

The marketplace for used goods has also picked up the pace during the last ten years as a number of startups have emerged in the market, such as OfferUp, 5miles and OLX.

Boom of the Unicorns in the Used Goods Marketplace

The online market for used goods has dramatically increased over the past decade as more and more e-commerce companies have made their entry. Encouraging the users to get rid of the items they no longer need, these companies have created a multibillion dollar market.

Recently, Letgo, a company that allows users to purchase and sell products secured $175 million in new financing. It has previously grabbed on to $325 million since it was initially launched and is currently approaching one billion dollars in valuation.

Moreover, some of the big unicorn names like Facebook launched a Marketplace Tab on the lower bar of its mobile application that allows quick access to shopping and selling on the basis of location. This goes to show how it is planning to penetrate in the e-commerce industry rather more aggressively.

LatAm Unicorns – Making it Big

On the other hand, in Latin America, some of the talented entrepreneurs are hosting five of the world’s biggest Unicorns ($1 billion in valuation). Although, the list of tech startups founded in Latin America is short, yet, these companies have made it possible for other new entrants to envision themselves as growing on a global scale. Argentina is the only country in Latin America with 4 (soon to be 5 with Letgo) out of 6 Unicorns. Those Unicorns are MercadoLibre, Despegar, OLX and Globant.

MercadoLibre is an online company from Argentina that is involved in online auctions and e-commerce. eBay made a strategic alliance with this company back in 2001. Apart from Argentina, the company currently has its presence in Colombia, Brazil, Costa Rica, Chile, Mexico, Dominican Republic, and a lot of other countries.

B2W is another name in the same sector. It was founded in 2006 and its headquarters are based in Rio de Janerio. B2W is a retail company that came into existence as a result of a merger between Americanas.com (holding a control share of around 53 percent) and Submarino.com (controlling the remaining percentage of share). The market-share of a company in the year it was founded was almost 50 percent of the online sales sector in Brazil.

Similarly, another renowned Argentine unicorn company from the e-commerce sector is OLX, which was founded by Fabrice Grinda and Alec Oxenford in 2006. Its headquarter is based in New York. The company is currently operating in more than 40 countries around the world.

The total number of internet users in Latin America is closer to the users in the U.S., but it has shown rapid growth in the past couple of years with the growth rate that is 8 to 10 times more than the U.S. rate. It means that the potential for new startups to make it big is huge in this region. Besides, there is a strong institutional and government support for entrepreneurial companies, which can further increase the expected number of unicorns in that area.

How to Invest Smarter?

Angel investors and venture capitalists provide funds to early stage or emerging startups in exchange for equity and aiming to make huge profits. The trend of such investments has been increasing and there are a number of startups that became successful as a result of such investments, including WhatsApp, Uber, and Facebook.

It is very important to invest in a promising startup that has a potential to attain a unicorn status, yet, it is not easy to be an investor. Choosing the right start up is as important for an angel investor as it is for an entrepreneur, but does it determine an investor’s success? To understand how one can invest smarter, let’s look at a few tips by different investors.

Focus on Team and Market

The investor in Famo.us, TouchOfModern, and Airseed, Siqi Chen, said that when you make an investment in a startup, it is usually a very early product. Therefore, it is crucial for an investor to calculate and assess the opportunities accordingly and should keep the focus on the team and the overall market.

Ask Yourself – “Would I Join this Start-up?”

Another angel investor, Mike Greenfield, who invested in Hullabalu and Pocket shared some important insights on taking an investment decision. He said that in the beginning, he used to ask himself if the startup would yield a positive outcome on an investment, but it changed over time, and now he usually asks if he could see himself joining that company when he was 24? If the answer to the latter is affirmative, it shows that the founder of a particular start-up is working a problem that isn’t structurally flawed and has a good chance of winning big.

He further said that such companies have a potential to convince a geeky person like him as they work on something that is important and also ace the integrity test. He added that if a startup satisfies all those things, it makes him feel like he’s doing something right as an investor, regardless of whether he makes money out of it or not.

Read the Herd Correctly

There is this common phenomenon in a stock market, whereby, investors can make a lot of money simply by reading the herd correctly. The same was observed by Christopher Schroeder, investor in Vox Media and Skift, when he began angel investing a few years ago. He said that when he presented a deal to bright and successful friends, the first question they asked was “who is in?” even before the question about a team and its concept popped up. Therefore, one has to read his herd correctly before taking any decision.

Identify the Scale of Assistance Required by a Startup

Jeff Miller, another investor in the world of angel investing, said that when an angel provides a feedback on a product, founder usually appreciate it. But the clutch actions are quite rare than anticipated by him. Such actions can affect a company’s future. However, if you look at it from the perspective of successful companies, they look for a minimal assistance from their investors. So, it is important to identify the scale of assistance required by a startup for its future growth.

Choose a Company with a Good Working Product

It is of vital importance to invest in a company that has a good working product. Having a good team of individuals in any startup is not enough if they don’t have a product that solves a problem. A product has to show a “product-market fit.”

Double Down the Investment Once a Potential Unicorn is Spotted

Once you identify a potential winner, you should “double down”, as it represents almost 20 percent of the initial pool of investment.

However, patience is the key, and individuals in early stage startups usually have to wait for 3 to 10 years before they start earning profits from their investment.

Although, there is a lot of risks involved in investing in a new startup, yet the trend for angel investing is rapidly increasing. In order to invest smarter, an investor has to always welcome different ideas, because great ideas are born every day.

But only a few of them, with the right investor (and investment) turns out to be a complete success.