Global venture funding hit a record $643 billion mark last year, registering a phenomenal 92 percent growth compared to $335 billion for 2020. Venture investment in Asia set a new record too, totaling $165.1 billion and up 50 percent from 2020, according to research by Crunchbase News. 2022 will continue to propel the rapid growth of new businesses.
Asia witnessed 97 companies going public in 2021, a majority of which were venture capital or VC-backed companies. The number of venture builders has increased dramatically across the world. According to Enhance Ventures report, there has been a phenomenal growth of 625% between 2013 and 2020. This is growing in Asia too, with an increasing number of venture builders in Singapore, Hong Kong and China, India, and other Asian countries.
Venture builders are industry experts that transform ideas into commercially successful business firms. In the last year, entrepreneurs appeared to have an endless supply of capital. Riding on easy lending policies, private capital led investments in disruptive industries and ideas in 2021. But transforming an idea into a successful business operation continues to be a risky affair.
The figure is well known and sobering: as many as nine out of ten startups fail. About 20% fail within the end of the first year, and over half of startups in the US die by the fifth year, according to US government records. Common reasons for failure include a lack of product-market fit, marketing issues, team challenges, financial troubles, tech, operations, and legal tangles.
For venture capital investors, it means that for every 100 startups that they invest in, ten will have to outperform to compensate for the other 90 failures. Business builders and entrepreneurs with a keen eye know that they are building products and services in a market transitioning to a post-pandemic world. We can expect that some of the COVID-19 disruptions will lead to a permanent change in how we work, shop, and have fun with family and friends. Here are the five key trends in venture building that is keeping us up at night:
1. Digital Transformation
No business can survive a market that is increasingly digitally literate or is born as a digital native. Businesses of any size or product will make an even more significant shift towards digital transformation in 2022. But some corporations may continue to face legacy barriers.
Venture builders can be ideal partners in such situations as they can leverage their experience in attracting new talent and initiating a cultural shift in an organization. New digital-first businesses will continue to challenge and steal market share from legacy companies due to their agility to respond. They can unlock significant new growth that is asset-light.
We will also witness continued record-breaking investments in fintech, real estate, proptech, organic e-commerce, cybersecurity, among others. Venture capital attracted to disruptive innovations will continue to surprise the industry and public in 2022.
2. Sustainability is critical for startups to succeed
Now, people just don’t expect but demand that corporates find solutions to global climate change and sustainability challenges. Many public opinion surveys show that public concern for the environment has dramatically increased post-COVID, and trust companies will respond to them.
And people are putting their money where their mouth is. Products carrying an on-pack sustainability claim grew 5.6 times faster than those that were not, according to a study in Harvard Business Review. Sustainability-marketed products grew faster than conventional counterparts in more than 90% of the consumer-packed goods. New ecosystems such as OrgHive are connecting businesses to conscious consumers in China.
Business leaders now see climate change as not only a threat but an opportunity to secure a healthy and happy future for customers and employees. We will see more innovative businesses develop, scale, and deploy new technologies for a clean and green future in 2022.
Buoyed by security threats to business operations and customer data, cybersecurity has become central to an organization’s survival. Customers also watch what a company says and does about its data management practices.
Remote and hybrid work conditions require an enterprise-level security structure. Employee authenticity and data protection policies make cybersecurity a business and regulatory risk. Ensuring security without sacrificing productivity has become a key challenge, heralding the need for better process management flows.
In 2021, an unprecedented $21.8 billion in venture capital was invested into cybersecurity companies. The change will continue, and the record investments in cybersecurity will only last till this year-end.
4. Future of work: From cubicle to cloud
The office space has shifted from the cubicle to the cloud. Due to reoccurring lockdowns, we have witnessed the most significant workplace disruption in generations. Work from home and hybrid work plans are unlikely to change anytime soon. 2022 will throw open several venture-building opportunities, with some estimates pegging the Future of Work (FoW) industry to be about $1 trillion by 2024.
Attrition is another major challenge we witnessed in 2021. More than 40% of employees were thinking about leaving their jobs at the beginning of 2021, according to a Microsoft study that surveyed over 30,000 employees across 31 markets. We already know that innovations in employee experience (EX) will be a fundamental driver for change in customer experience (CX).
According to Jared Spataro, CVP at Microsoft 365, “(T)the data is clear: our people are struggling. And we need to find new ways to help them.” Apart from increasing productivity, we will see disruptions in products and services to help employees take care of their physical and mental well-being ‘while at work.’ People need help dividing work time and family time when they are all day in their homes.
Flexibility in working conditions will be helping bridge the gender and racial gap in who comes to work. There is already a 100-year gender equality gap with fewer females in leadership positions, and the difference is quite stark in the venture capital world too. Investing in narrowing these gaps in equal opportunities is not just good work but a good business model.
5. Diversity dividend
An increasing number of corporates have pleaded action to do the right thing and want to be seen doing the right thing. Diversity, Equity, and Inclusion (DEI) initiatives will further get leadership attention and shift from an initiative to a corporate culture in 2022.
In previous years, we have seen that most successful ventures have inclusivity embedded into their products, curation of teams, and everyday corporate culture. According to Harvard Business Review, the frequency with which top CEOs talk about equity, fairness, and inclusion in their earnings calls has increased by 658% since 2018.
Harvard scholars found that diverse teams not only make better decisions but also make better investments. According to Boston Consulting Group, companies with diversity on their management teams report innovation revenue that is 19 percentage points higher than companies with below-average leadership diversity.
Over 1,100 companies are expected to be listed in 2022, according to industry research. Several would struggle in the stock market after initial listing if the past were any indicator. Some may not even survive to see their fifth anniversary.
IMS Digital Ventures is the venture building arm of Integrated Management Systems, Asia’s leading digital transformation agency. Talk to us to bring your vision to life while using our experience to fine-tune your idea, architect and build the technology and help you raise external capital at the best possible valuation.