Where did VCs invest over the last 10 years and where will they invest in the next 5?

Mar 23, 20233 min read

Computer screen with stock prices. — Venture Capital Investments have returned 14.5% per annum over the last 10 Years.

Over the last ten years, venture capital (VC) investment trends have significantly changed. These trends have been shaped by factors such as technological advancements, shifting demographics, changes in consumer behaviour, and economic conditions such as inflation, pandemics and more.

I thought it was timely to reflect on the last ten years and explore the significant VC investment categories over the past decade and my views on why the money flowed to these investment categories and the future trends of VC investment over the next five years.

Over the last ten years, there have been three main or broad categories of Major Venture Capital Investment Categories. These were:

Technology: Over the past decade, technology has been one of venture capitalists' most significant investment areas. This includes investments in areas such as software, fintech, artificial intelligence, and cybersecurity. According to a report by CB Insights, technology accounted for over 70% of all VC investment in 2021.
Healthcare: Healthcare has also been a significant area of investment for venture capitalists over the last decade. This includes investments in biotech, medical devices, and digital health. According to the same report by CB Insights, healthcare accounted for 10% of all VC investment in 2021.
Consumer: Consumer products and services have also been a significant investment area for venture capitalists over the last decade. This includes investments in areas such as e-commerce, food and beverage, and fashion. According to the same report by CB Insights, consumers accounted for 7% of all VC investments in 2021.

Reasons for the Money Flowing to these Investment Categories

Technology: The main reason for the significant investment in technology over the past decade is the rapid advancement of technology. This has led to new and innovative products and services that have disrupted traditional industries, creating new investment opportunities.
Healthcare: The aging population and increased healthcare spending have created new opportunities for investment in healthcare. The rise of digital health has also led to new investment opportunities in this area.
Consumer: The growth of e-commerce and the shift in consumer behaviour towards online shopping has led to significant investment in consumer products and services.

The question is, then, were these Investments Successful?

Overall, it is fair to say VC investments have been successful over the last ten years.

According to a report by Cambridge Associates, VC funds had an average net return of 14.5% per year over the past decade.

However, some significant failures have been in certain investment areas, such as clean energy and social media.

So if we accept investment flows will move and change as it explores to monetise the value created by new innovative companies, solving new and complex problems, the future trends of Venture Capital Investment over the Next Five Years will be different.

Although there will still be a heavy investment in technology in a broad sense, it will be more granular. However, here are some areas that are starting to show signs of Venture Capital interest:

Sustainability: With the growing concern for climate change and sustainability, we expect to see an increase in investment in clean energy and other sustainable technologies.
Healthcare: With the aging population and the ongoing pandemic, healthcare will likely continue to be a significant investment area for venture capitalists.
Fintech: The rise of cryptocurrencies and blockchain technology will likely lead to significant investment in fintech over the next five years.
Diversity and Inclusion: With the growing focus on diversity and inclusion in the workplace, we expect to see more investment in companies promoting diversity and inclusivity.

Final Thoughts

Venture capital investment trends have significantly changed over the last decade, with technology, healthcare, and consumer products and services being the major investment areas. The rapid advancement of technology and changes in consumer behaviour have led to new investment opportunities.

Overall, VC investments over the last decade have been successful, with an average net return of 14.5% per year. I will be fascinated to look back on my article and see whether there has been an increase in investment in sustainability, healthcare, fintech, and diversity and inclusion over the next five years.

About the Author

Adam Ryan is a Professor of Practice (Adjunct Professor) at Monash University and is a principal at Watkins Bay. Adam has over twenty years of start-up experience in Australia and the USA. An expert in Company Structuring for Innovation, Strategy, Mergers & Acquisitions, and Capital for early and growth-stage businesses.