Bain: Venture capitalists flocking to technology to start-ups

19 October 2021 Consultancy.eu 3 min. read

Investors in start-ups – venture capital firms and corporate venture capitalists – are more than ever channeling their funds into tech companies, according to new analysis by Bain & Company.

The ‘Global Technology Report’ by Bain & Company sheds light into several major trends in the technology scene, including how investors are increasingly turning their eye to young, innovative tech-savvy companies. While tech start-ups have been popular hunting ground for years now, the sector’s dominance has reached record heights. 

“In the first two quarters of this year, tech start-ups accounted for over two thirds of total venture investments,” explained David Crawford, leader of Bain & Company’s Global Technology practice. 

Global investment value

The backdrop is evident. In a movement accelerated by the Covid-19 pandemic and the resultant shift to digital ways of working and doing business, “technology has become the primary force of disruption and value creation in nearly every industry around the world.” 

One movement visible within venture capital tech spending is a shift towards later-stage deals. Crawford: “Investors have flocked toward surer bets to hedge risk and ride out the storm.”

Tech venture investment value, by stage

The Bain & Company partner added that this shift is likely to remain for a notable period after the pandemic. “Venture-backed companies are choosing to stay private longer, which allows them to continue investing in revenue growth by avoiding capital market pressure to focus on profitability.” 

Where’s the money going to?

Where are venture investors focusing their technology bets? The two segments that account for the largest number of deals are artificial intelligence and cloud technology, which together grew more than twice as fast as venture investments in all other sectors over the past decade and now make up more than a third of total tech venture investment value.

Industry-specific percentage of investment value

On cloud computing, Crawford said: “Companies and investors are well aware of the extraordinary impact that cloud-based computing models can have. Cloud-driven business models are unlocking significant value for companies across every sector.” 

Zooming in on artificial intelligence, the vast majority of venture investments are concentrated in two countries: the US and China. 

Most AI venture investments are concentrated in the US and China

The two sectors receiving the most artificial intelligence venture funding are transportation (AI is used for among others autonomous driving, robotaxis and improving the efficiency of long-haul trucking) and healthcare (AI can among others benefit drug discovery, diagnostics and imaging). 

According to another report by Bain & Company, private equity (venture capital’s bigger brother in the investment landscape) is well on its way to book its best year in history. Similar to the venture capital space, the technology sector is the largest driver of both deal value and volume.