In order to impress investors, startup owners need to demonstrate that they are familiar with venture capital trends. Familiarity with these trends will help entrepreneurs to tailor their presentations to investors and make their companies look as appealing as possible. Investors feel most comfortable giving money to individuals who clearly understand the financial landscape of venture capital and track its changes. Following are some of the key trends for 2016 that entrepreneurs should know.
1. A greater focus on investor education:
Despite the popularity of venture capital investments, many investors remain wary of the asset class largely because they do not know enough about it. While the old-school approach to investing is largely hands-off, the hands-on method necessary for venture funds may seem intimidating to some. However, more educational opportunities for investors to learn about venture capital are becoming available. Wealth managers and family offices are both taking a proactive role in educating potential investors about the benefits of venture capital. As a result, money is becoming available from novel sources, and entrepreneurs need to pay attention to these new avenues. With the quickly changing landscape of venture capital, many of these new investors will likely find a fit in their regional or local economies, even if they are not in major entrepreneurial centers.
2. Investment teams seeking greater diversity:
3. An increase in incubators and accelerators:
Corporate sponsorship has largely resulted in a major surge in incubators and accelerators for startups. At the beginning of 2016, about 2,000 incubators existed across the United States, but it seems that new ones open on an almost weekly basis. Incubators and accelerators bring economic growth to a region, albeit indirectly, so their expansion will not likely stop in the near future. Because of this fact, more investors may begin connecting to these organizations as they look for potential investments, or they may expect their investments to have already participated in one or to participate in one in the future in order to maximize potential returns. Business owners need to tread somewhat lightly around this topic since a recent study from the Massachusetts Institute of Technology concluded that funding at the initial stages become more competitive around accelerators. However, this could change as more accelerators open.
4. Larger number of corporate deals:
5. More competition among early-stage funders:
New startups have become highly visible in popular culture through crowdfunding platforms, accelerators, and social media, all of which provide free advertising for young companies. In addition, many investors are looking beyond Silicon Valley, where incredibly high valuations have made startups inaccessible to smaller funds. Larger investors, such as Google Ventures, have begun pulling out of early-stage deals because these smaller investments do not have enough of an impact on their very large funds. As a result, smaller funds will need to fight to differentiate themselves as competition increases. Those funds that do the most to differentiate themselves and demonstrate their value will have a leg up on the competition.