What technologies are venture capital (VC) firms betting on today? The top 10 industry verticals in terms of capital invested so far in 2016 are: mobile ($14.4 billion), SaaS ($13.4 billion), E-commerce ($8.7 billion), LOHAS (Lifestyles of Health and Sustainability, or green living & technology; $7.5 billion), life sciences ($6.8 billion), big data ($3.8 billion), oncology ($3.5 billion), Fintech ($3.4 billion), manufacturing ($2.4 billion) and cybersecurity ($2.2 billion).
Some headline-grabbing technologies rank lower: artificial intelligence (AI) and machine learning are 13th ($1.4 billion), virtual reality (VR) is 16th ($1.1 billion), robotics and drones are 19th ($695 million) and autonomous cars are 23rd ($353 million). This analysis, through October 26, 2016, was developed for Investopedia by PitchBook, the official data provider of the National Venture Capital Association (NVCA). Note that a given deal may fall into multiple categories, if the firm being funded operates in multiple verticals.
Cutting the data more broadly, through the first nine months of 2016, nearly 65% of VC funding went into these three areas: software 45.6%, biotechnology 13.9% and information technology 5.4%, according to the PriceWaterhouseCoopers MoneyTree report.
Big Deals on the Horizon
Among the biggest paydays for VC investors in recent years were the initial public offerings (IPOs) for LinkedIn Corp (LNKD) in 2011, Facebook (FB) in 2012 and Twitter (TWTR) in 2013. The next really big IPOs are likely to be for ride-hailing service Uber Technologies Inc. and Airbnb, currently valued at $68 billion and $30 billion, respectively. (For more, see also: Is Airbnb's Growth Hitting a Brick Wall?)
Looking Beyond Smartphones
Over the past decade, the smartphone has been a core technological advancement that spawned yet more innovation. Uber is the most notable spawn of the smartphone. Its success led VC firms to chase new opportunities in on-demand apps. Most of these have met with disappointment.
Facebook, already a huge success in social networking, placed a bet on virtual reality (VR) by buying Oculus VR Inc. This led some to predict VR as the next big thing. Cooler heads have noted that sales of VR hardware are miniscule versus the billions of smartphones now in service around the globe.
The Internet retains the potential to produce the next big thing. Cloud computing is a notable recent outgrowth, but this field already is dominated by a few major players that seem likely to resist new competition.
VC firm Draper Fisher Jurvetson is betting on agriculture, robotics, artificial intelligence (AI) and aerospace. As quoted in the Wall Street Journal, Steve Jurvetson nonetheless warns that much money will be wasted on unsuccessful startups in these fields. Based on hard experience, he advises avoiding capital-intensive businesses.
Big Companies, Big Bets
Established companies are throwing piles of cash into developing what they see as the next wave of breakthrough technologies, blocking the way for potential startups in these fields. For example, deep-pocketed players such as Google (GOOG), Apple Inc. (AAPL) and Uber are investing heavily in self-driving automobiles. (For more, see: The Business of Google.)
Meanwhile, VC firms are turning cautious. According to Dow Jones VentureSource, during the first nine months of 2016, VC firms have invested 30% less funds in startups than they did during the same period in 2015. While VC firms are raising funds at the fastest pace in a decade and a half, finding the right startups to back is taking longer and longer. (For related reading, see: Venture Capital: Tech’s Slow-Motion Meltdown.)