While the impact of COVID-19 has been felt in every corner of the world, the new reality that is centred around healthcare innovation and is shaped by physical-distancing will likely have greater business and fundraising implications on certain technology-heavy verticals than others.
According to Pitchbook, these are the top four emerging tech verticals that most likely to be significantly impacted in terms of demand and subsequently fundraising.
The retail health and wellness tech vertical is expected to be amongst the most positively impacted by the pandemic. It encompasses:
Aided by supportive legislation to promote telehealth in the US, in addition to an expected hike in government investment in health technology, this tech vertical should seek out investment now. To further position their case in front of VCs, companies should adjust their market size and projections—especially because there has been a surge in demand for mental wellness and physical exercise applications, as well as retail health and wellness technology.
With governments around the world ordering the closure of restaurants and consumer quarantining, demand for grocery and food delivery has experienced an exceptional hike. Although this demand might soften somewhat after the COVID-19 crisis, it is expected to remain high.
This vertical, which represents companies that provide technology and services that are disrupting the transportation, automotive and shipping industries, is likely to be one of the most adversely impacted.
While this vertical already experienced some VC pullback in 2019, the current crisis characterized by physical distancing is likely to exacerbate the funding pullback as investors seek less risky opportunities.
Many autonomous vehicle companies have suspended their testing, and ridesharing apps have seen a sharp drop and, in some cases, the complete suspension of their carpool services. All this further impacts the funding opportunities for this vertical.
When it comes to the IoT vertical, the affects of the current COVID-19 crisis are heavily dependent on the actual application of the technology. For example, mainstream industrial IoT adoption is expected to wind down due to industrial enterprises reducing their IoT-related costs. However, IoT related to areas such as connected healthcare that enables remote patient monitoring, and smart cities that helps enhance pandemic responses, is expected to see increased demand—and consequently, increased funding—in the upcoming quarters.
It is also expected that cost-cutting for corporate venture capital in the IoT field coming from companies such as Samsung, Sony, Intel and Qualcomm is going to eventually make its way to investments.
Another important factor that will play a role in your fundraising efforts is how much you’re looking to raise.
If we look back at how different funding stages were impacted by the 2008 recession, Pitchbook data shows that smaller-sized angel and seed-stage rounds (usually less than a $1 million) were the most resilient, and even witnessed an actual increase in both deal count and value. At the same time, both early-stage (less than $4 million) and late-stage funding (around $8 million) saw a decline in both count and value.
While it’s uncertain whether the trends will unfold the same way, angel and seed-stage rounds are still expected to fare better this time as well.
Previous research by PitchBook reveals that during the 2008 recession, not only did venture investment slow down, but time between investments lengthened while valuations declined. This suggests that even companies that were able to raise money had to bootstrap longer than they may have otherwise.