Venture Capitalists Discuss Tech Trends to Watch in 2022 – Business Insider

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The pandemic shook loose a wave of creators and social-media influencers who abandoned their corporate jobs and became their own bosses. This shift has driven demand for tools that help them make a living, said Carlotta Siniscalco, a partner at Emergence Capital.
“With the right technology tools in place, you can now earn a living wage from wherever you want — monetizing your creativity, time, and knowledge on your own terms,” she said.
The creator economy, which refers to a class of businesses that turns digital content into gig work, has bloomed into a multibillion-dollar industry. Anu Duggal, a partner at Female Founders Fund, said she expected the trend to continue as more people, especially members of Generation Z, strike out on their own, and the need increases for tools to help them succeed.
“It has become increasingly clear over the past year that there is demand for remote work and more flexible lifestyles. While Covid certainly played a role in this shift, Gen Z’s appetite for entrepreneurship is also shifting the traditional workplace paradigm,” Duggal said.
The venture industry smashed all sorts of records this past year, with more unicorns minted in a single quarter than in all of 2020 and more money pouring into funds than ever before.
But the surplus of capital won’t last forever, said Carlotta Siniscalco, a partner at Emergence Capital. She advised founders to raise the money they need to run their businesses and focus their attention on hiring and retaining employees — “by building a strong culture that would withstand a less exuberant fundraising environment than what we have today.”
For those looking to raise funds, Ann Bordetsky, a partner at NEA, said the fundamentals have never been more important. Investors want to see a killer product and team.
“For founders it’s important to know that while there is plenty of capital in the system, the hype isn’t evenly distributed. For most startups, it still takes serious effort to raise,” she said.
Sam Altman, the startup whisperer, declared the rise of the “party round” in a blog post in 2013, and ever since, more startups have trended away from raising large amounts of money from a few large investors. Instead, they’ve taken a bunch of small checks from small investors.
The party round may “become the new normal for early-stage rounds” as founders realize the benefits of a large cap table, said Blake Bartlett, an OpenView partner. “Party rounds allow you to turn your community of supporters into an army of engaged shareholders,” he said.
Supercharging the shift is a months-old startup called Party Round. It creates fundraising tools for founders that take the hassle out of sending docs, collecting signatures, and receiving funds.
“It’s a product built to help facilitate party rounds, and they themselves raised a party round. Very meta, but also very promising,” Bartlett said.
Techies are watching a new internet take shape before their eyes. Known as Web3, this version of the web runs on crypto tokens, and it aims to unbundle existing internet services.
“Every once in a while, a new technology comes around that unlocks new possibilities in consumer experiences,” said Sarah Tavel, a general partner at Benchmark, where she invests in consumer and crypto. “For years, crypto has been in its infrastructure-building phase, and it’s just now getting to the point where new consumer experiences can be built on top.”
Investors are hyped for Web3 to go mainstream in 2022. Mike Jones, a cofounder and managing partner at Science, said more companies would leverage crypto principles even without users noticing. Talia Goldberg, a partner at Bessemer, agreed: “‘Web3’ will just be ‘the web’ as the complexities of the blockchain are abstracted away and consumer adoption grows.”
Soon enough, a new crop of startup unicorns may emerge within the space.
“With the flood of talent into this space, it’s a race to find the Uber, Twitter, Stripe of the Web3 economy,” said Ann Bordetsky, an NEA partner who previously worked at Uber and Twitter.
The exodus of workers during the pandemic has left millions of jobs unfilled. But there’s good news for tech workers. The talent shortage gives them more leverage than ever.
“This shortage is showing zero signs of slowing down. It’s a candidate’s market for the foreseeable future,” said Steve Melia, a type of recruiter known as a talent partner at the venture-capital firm OpenView in Boston. “Flexibility on where candidates can be located, putting together competitive compensation packages (75th percentile), and inflating titles are just the start. If you aren’t competitive with things like this, you will be left in the dust,” he said.
He added that the recruiters themselves would be the most sought-after talent in the market.
The prospect of clocking nine hours in an office has less appeal than it did in, say, 2019.
Clara Sieg, a partner at Steve Case’s Revolution Ventures, said that as long as the talent wars continued, employers would be unable to force workers back to the office. That would result in significant attrition, so instead, companies must find ways to work in person and remotely.
“The winners will be the companies who embrace efficient, engaging hybrid models and the workplace products that help employers succeed and iterate in that model,” Sieg said.
Parker Barrile, a partner at Norwest Venture Partners, agreed: “The return to office won’t happen.” He said people would continue to do most meetings over video, and they’d bond outside the office at dinners and events, where they could clock face time with colleagues.
This new mode of “hybrid work” could spell the end of bro culture, said Saar Gur, a general partner at CRV. “For many years, Silicon Valley fostered a lifestyle of grinding endlessly at work 24/7 by keeping employees on-site with perks like game rooms, free food, and drinks,” Gur said. “But family matters, too.” He added that such incentives would fall by the wayside.
Instead, companies are promoting flexible schedules to recruit world-class talent. “The new emphasis on flexibility allows employees to allocate their hours to creative endeavors, hobbies, and the people who matter the most to them in ways we couldn’t have imagined pre-pandemic, and it should lead to better productivity and happier employees in the long run,” Gur said.
These days, many startup founders can raise huge sums of money without making a single pit stop on Silicon Valley’s Sand Hill Road, where many of the prestige venture firms are located.
The number of deals that were led or coled by so-called tourist backers, such as an asset manager, hedge fund, or corporate venture arm, has doubled over the past decade, while other nontraditional investors, such as founders, celebrities, influencers, and emerging fund managers, continue to enter the venture arena and claim larger segments of the market.
Call it the decentralization of venture capital, said Leah Solivan, a general partner at Fuel Capital. “The center of gravity — particularly at the seed stage — is shifting away from traditional firms toward a new cohort of investors that come from diverse backgrounds,” said Solivan, who also founded and sold the company TaskRabbit. “Founders stand to reap a lot of benefits from this: They’ll have expanded access to capital with fewer barriers to entry.”
For more than a year, startups have cruised through the pandemic, fetching higher and higher valuations in the private markets.
Mitchell Green, a managing partner at Lead Edge Capital, expected prices to keep climbing as long as public investors were receptive to buying shares in newly public tech companies.
But Jordan Nof, a managing partner at Tusk Ventures, said market conditions could sour as the pandemic entered a new wave, and that founders should prepare for the worst.
“One fast-moving threat is the potential impact that the Omicron variant could have on the global economy,” Nof said. “This added uncertainty could put additional downward pressure on valuation multiples in both the public and private markets. Founders cannot simply assume that we will pick up 2022 where 2021 left off and should plan their raises accordingly.”
Investors said they were bullish on the Canadian tech ecosystem. Funding for startups jumped to $9.3 billion through the third quarter of 2021, tripling the previous year’s total, with homegrown startups Dapper Labs, Clearco, and Blockstream picking up a significant share.
“Canada’s growth is being driven by international, world-class investors who are leading rounds into high-growth, later-stage companies because they recognize the strength of the Canadian ecosystem,” said Janet Bannister, a managing partner at Real Ventures, which has offices in Toronto and Montreal. “We expect these trends to continue to accelerate in 2022.”
Plus, the Canadian government is now processing immigration applications faster than it has over the course of the pandemic, which could free up more tech workers to migrate north.
The crypto boom over the past two years has helped propel a newer market to record heights: digital collectibles, also known as NFTs. These unique items had a breakthrough year in 2021, with total sales volume surging to $12 billion, Markets Insider’s Matthew Fox reported.
Not everyone is convinced that the craze will last.
“Digital assets were designed to be fungible — infinitely scalable and shareable — and that’s why content has transitioned away from a pay-to-own model to a pay-for-access model,” said Parker Barrile, a partner at Norwest Venture Partners. For instance, most people pay a monthly fee to stream music rather than buy albums. “In the end, all NFTs will be worthless.”
Alexa von Tobel, a managing partner at Inspired Capital, said she asked dozens of founders on her podcast how many days a week they expected to be in the office in 2022. Three days, they said. That answer led her to believe that people would return in droves to New York this year.
“As hybrid workplaces open up to that three-day-a-week reality, I believe we’ll continue to see the rise of New York. As a New Yorker, I was long NYC pre-pandemic, and I think we’ll continue to attract many of the best operators out there,” von Tobel said. “Lots of data backs this up: 83% of execs are confident they’ll be able to meet tech-talent hiring goals from the NYC talent pool, and in doing so, diversify their workforce as compared to other cities.”
The future of finance may be a stone’s throw from Wall Street, said Mark Goldberg, an Index Ventures partner. He predicted that Brooklyn would become the dominant hub of blockchain companies and digital assets. It’s already home to Consensys, an ethereum-focused startup studio, and industry thought leaders, including Mario Gabriele, Packy McCormick, and Ash Egan.
“You get domain expertise from the biggest banks in the world; a wave of top technologists relocating from the West Coast on the heels of the pandemic; and the most vibrant art and cultural scene in one place,” Goldberg said. “So as fintech merges with culture, New York City, and Brooklyn in particular, is the forge for the next generation of Web3 talent and startups.”
The demand for new workflow tools jumped over the course of the pandemic for two reasons. First, the uncertainty around new coronavirus variants has postponed the return to the office, so people are relying on software to perform in-office tasks and collaborate with their remote coworkers, said Maren Bannon, a cofounder and managing partner at January Ventures.
Second, many of the nation’s youngest people — Generation Z — aspire to be their own bosses, said Anu Duggal, a partner at Female Founders Fund, who invests in the creator economy.
The two investors expect the rise of hybrid work to breed new software.
“It has become increasingly clear over the past year that there is demand for remote work and more flexible lifestyles,” Duggal said. “While COVID-19 certainly played a role in this shift, Gen Z’s appetite for entrepreneurship is also shifting the traditional workplace paradigm.”
In 2022, more women than ever may barrel through the doors of venture capital’s boys’ club, said Katelin Holloway, a founding partner at Alexis Ohanian’s Seven Seven Six.
The proportion of female general partners at venture firms rose to 15% last year, a new report by PitchBook said. The analysis focused on firms with at least $50 million in assets.
“The events of the past two years have been a real eye-opener for the VC industry as many have vocalized the notoriously homogenous makeup that’s existed for years,” Holloway said.
She continued, “With conversations of leveling the VC playing field being more front and center than ever before, we’re confident we’ll see women fill more roles across venture than ever before.”
Investors sunk a record amount of capital into cybersecurity startups over the past year as the pandemic and hacks at Microsoft and SolarWinds made the industry more vital than ever.
Gene Frantz, a general partner at CapitalG, predicted that cybersecurity investments would double in 2021, once the year’s funding total was tallied, and would double again in 2022. The hearty investor appetite would encourage a new crop of startups in the space to emerge, and one or two of these companies would be valued at more than $150 billion in the next five years, Frantz said.
“So far, there’s no Google or Microsoft within the cybersecurity sector,” Frantz said. He continued, “The rapid adoption of cloud computing and infrastructure across the enterprise makes the potential for a broad, generational leader in cybersecurity possible for the first time.”
The past year saw the venture market split into two groups: passive and active investors. Notably, Tiger Global became the most active dealmaker in the first half of last year — in no small part because of its reputation for leaving founders alone to run their businesses.
Mike Volpi, an Index Ventures partner, has another name for these hands-off investors: “just money.” He advised founders to choose backers wisely “to make sure it’s the right fit.”
Sooner or later, investors said, active investors would make a comeback.
In 2022, “the move to passive capital runs its course, and founders shift back to active capital and firms who can truly help with company building, network, and resources,” said Matt Murphy, a partner at Menlo Ventures. (Murphy didn’t name Tiger Global specifically.)
In 2022, swarms of venture capitalists may look to the long-ignored region of Latin America, where startups grabbed record sums of funding last year. Lolita Taub, an operator and scout at Lightspeed Venture Partners, said its large population coupled with its high number of internet users made the region ripe for innovation. That’s good news for bargain-hunting VCs. “There are future unicorns at valuations that are a fraction of what they are in the US,” Taub said.
Investors hunting for future unicorns in the cloud-computing sector could make bigger gambles on startups much earlier in the cycle, said Dharmesh Thakker, a general partner at Battery Ventures who specializes in business-to-business infrastructure software.
“When it comes to high-growth cloud companies, investors have become more comfortable with early-usage data as a proxy for revenue,” Thakker said. That data made them more willing to fund pre-revenue companies at the Series A and sometimes at the even later Series B.
The concept of the metaverse has existed in the gaming and science-fiction realms for a while, but it entered the mainstream culture in the past year. Facebook rebranded as Meta. People are paying millions for virtual real estate. And even the dating app Bumble is getting in on the action.
The arrival of big brands in the metaverse was inevitable, said Elaine Zelby, a partner at SignalFire. In 2022, companies would follow their customers into the digital world, she said, “whether it’s buying up plots of land in virtual worlds like Decentraland and Sandbox to showcase their brand or acquiring startups to help create and launch digital goods.”
Phil Libins remained skeptical. The chief executive of the startup studio All Turtles, who’s known as the founder of Evernote and mmhmm, predicted that the metaverse would ultimately disappoint us.
Virtual reality “will become good enough that ‘the hardware is not quite ready’ will no longer be an excuse,” he said. “And the world will see the metaverse for what it is: mostly lame.”
Zoom fatigue is real. That’s why investors, such as Elaine Zelby of SignalFire and Matt Murphy of Menlo Ventures, predicted a dramatic decline in virtual events and Zoom happy hours in 2022.
We’ll cheers to that.
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