Europe is leading
A new decade has started for global VC. A decade that begins with some news: the Asian market is slowing down while the European one is showing a strong dynamism and is growing. The quality of European start-ups is getting higher, and they are falling more and more into the radar of international investors. Market operators are getting increasingly specialised. A study by PitchBook expects that, globally, pension funds and sovereign wealth funds will show greater interest for Private Equity. While the Mediterranean area is moving quickly in terms of innovation.
Here are the five main trends that, according to P101, will lead the market starting from 2020.
E-mobility, FinTech, industry 4.0, PropTech, education and RetailTech: these are the hot sectors of this decade
A report by Kpmg explains that, globally, at the end of 2019, the hottest industries in terms of investments were the automotive, mobility and FinTech ones. These areas will continue to dominate also throughout 2020, but besides these, new areas will become more relevant: i.e., the enabling technologies of industry 4.0, such as AI and machine learning. As well as relatively new sectors, such as PropTech – which includes different niches (platforms for selling and renting residential and commercial properties; home automation; hospitality; new forms of real estate investments through FinTech platforms). RetailTech will be hot too, as it will improve the traditional shopping experience and thus help avoid a retail apocalypse. And finally, education, where technology is starting a revolution in online schooling and professional training. This trend will most likely lead to the rise of specialized operators in Europe, where Venture Capital funds have so far been working quite across-the-board in a still immature market.
In addition to becoming more specialised in the industrial sector, in the next decade we expect Venture Capital funds to increasingly use modalities that are similar to those of traditional asset management funds. Thus, portfolio diversification both in terms of industry and of and geography, medium-term performance objectives and attention to impact investing in the wake of an increased demand for sustainability by investors.
Increased activity of pension funds and sovereign wealth funds
According to a study by PitchBook, this trend will characterize 2020 in terms of PE, though, we expect it to also affect Venture Capital. The pioneering market for pension funds investing in PE and VC is the Canadian one, and its history shows that this strategy has paid off with better performances than its peers, who are therefore encouraged to follow.
As for sovereign wealth funds, the most sophisticated ones have started agreements with PE companies in order to operate: for example, the Singapore GIC sovereign wealth fund has collaborated with Brookfiled in order to acquire Genesee & Wyoming. The Abu Dhabi ADIA fund has done so with Cinven and Astorg, to purchase the LGC brand from KKR.
In general, private markets, including VC, are entering the radar of all institutional investors and are being used to compensate for the poor performance of traditional asset classes.
The acceleration of the Mediterranean area
Lisbon, Madrid, Milan: in the next decade the capital cities of VC will move further south, to areas offering excellent human resources and lower cost of living. This is the outcome of the Startup City Index that was created by the European Commission. In particular, the Index has studied the case of the Portuguese market, which, according to the Startup Europe Partnership report is growing at twice the rate of the European average (we talked about it here). And though some analysts say there might be a recession starting from 2021, it seems that precisely this part of the world would suffer it less – thanks to fairer valuations and a more efficient use of capital – and maybe even outperform – also thanks to the anti-cyclical nature of this asset.