AI’s presence is undeniable, and experts suggest that 2024 could mark the beginning of a second wave of AI startups, more verticalized, focusing on specific sectors, and moving away from building layers on top of technologies from giants like OpenAI and Google. However, investors are casting their nets wider. Beyond AI, which sectors are catching their attention?
Jahn Karsybaev, Founding Partner at Big Sky Capital, notes, “Cybersecurity is an area that has been trending in the past, but has been put aside with the rise of AI. Furthermore, AI now presents a much greater threat to cyber security of enterprise and we will see companies pay a lot closer attention to this space. We project that the company spend on cyber security will more than double in the next few years and making significant investments in this area. Our most recent investment in KeyCaliber provides solutions that lets companies automate the identification of critical digital assets.”
Valerie Bertele, GP at Yellow Rocks, observes, “Cyber security investments are topping the list following an even wider enterprise cloud computing adoption and a huge threat to our private information as well. World Economic Forum named disinformation and misinformation the number one global risk in the next 2 years and the top 5 for the next 10 years following major climate and environmental risks.”
Kelsey Aina, Principal Head of Startup Growth and Partnerships-Americas at HubSpot, adds, “We’ll still see blockchain, IoT, renewable energy. Other industries will be expanding and creating new opportunities due to AI, things like climate tech, edtech, healthtech, and even some surprising ones like manufacturing.”
Valerie highlights the evolving landscape, “I have seen a lot of discussions and investments around energy, from a strong uptake in renewable power, including energy efficiency, grid rejuvenation and energy storage solutions. Nuclear came back to the discussions with nuclear fusion advancements and has been visible with popular nuclear ETFs delivering up to 30% growth in the last couple of months. EVs and new battery solutions continue to be popular for capital allocation.”
Valerie further comments, “I have seen a strong interest in manufacturing, including a strong push for nearshoring and “made in the US” brand, general prop-tech and construction expanding all the way to space as a new frontier. Satellite technology, reusable rockets, new materials, and even space-based manufacturing are on the rise. Public-sector interest in these areas is growing, leading to increased venture capital movement towards dual-use technologies.
Green tech and climate tech continue to be strong areas for VC focus, with an increasing number of firms adding these sectors to their investment portfolios. The current geopolitical climate suggests that investments in Gov Tech and critical technologies will become more visible, stimulating a new wave of startups and capital allocations. Andreessen Horowitz’s formation of the American Dynamism fund supports this trend, expected to strengthen in the coming years.”
Karsybaev reflects, “Our fund has consistently focused on sectors like agriculture and real estate. Recent investments, such as in Pippin Title and BoomGrow, are disrupting traditional practices like title searches and sustainable farming.”
“We are very bullish on the outlook of the amount of innovation that technology is bringing to healthcare and incremental improvements often times lead to substantial results. Executives in Healthcare who are also experienced in being of value-add Board members are in high demand and we are on the constant look out for such talent. On the other hand, recent investments in companies like Cerebra AI have provided us with an opportunity to join a company that validated their thesis in a smaller market and now looking to bring their stroke prediction software to US market,” Karsybaev states.
Valerie adds, “All industries will benefit from AI in one way or another but I personally believe that the democratization and a dramatic cost reduction in software development will have a major impact on our businesses. Together with the way to learn and work with the information. Healthcare and legal tech are probably the areas where I see the most fast-moving changes.”
2024 also promises to be influenced by international events like the Paris Olympics, affecting sports tech and media, while global elections could sway the economy unpredictably.
Valerie observes, “AI and data analytics have already been impeded in sports and entertainment. I see a rise in AI twins for celebrities from voice to the whole persona avatars. I also want to believe that we will see a big spike in the popularity of professional women’s sports events and leagues.”
The rebound of international tourism amid geopolitical and economic uncertainties, coupled with post-pandemic travel desire, will likely benefit the hospitality and travel sectors. The rapid advancement of electric vehicles and renewable energy continues, potentially reshaping greentech and smart city initiatives.
“Electric vehicles and even more, self-driving cars, are my personal favorites and with AI and security/ collision prevention tech we should finally gain full government support for a wider adoption,” GP at Yellow Rocks notes.
Moreover, the growing trend towards health and longevity is poised to drive health tech and agetech innovations. The persistence of remote work and the rise of digital nomad visas suggest growth in remote work tools, hospitality, travel, and proptech. Technologies enhancing remote employee engagement and collaboration are expected to gain traction.
“Remote and hybrid work is here to stay and I see a strong tide of tech tools and innovations to support our new reality. With more freedom from offices, we see growing investments in self-care, mental health, and raising children including homeschooling and new AI education together with re-skilling tools for children and adults,” Valerie adds.
Jahn Karsybaev anticipates a challenging phase before improvement sets in. “It will be worse before it will get better. We are projecting that 2024 will be the year of stabilization and growth in 2025. When it comes to fundraising for the Funds, we are also projecting to be a tough year as capital allocators are being a lot more stringent and less risk averse when it comes to investing. Cost of capital is more expensive and a lot of companies are going through transformative phases as sales are becoming much more challenging to grow all across different sectors.”
Kelsey Aina foresees a slower pace in 2024 but remains optimistic about a recovery in 2025. “The investing climate will be stricter, with fewer unicorns due to market volatility and upcoming U.S. elections. Seed-stage startups may find it harder to progress to Series A in this selective environment, though opportunities still exist.”
Valerie predicts cautious investor behavior due to upcoming elections in the U.S. and other crucial countries. “With the elections coming not only in the US but in several major critical countries I predict investors will be more cautious about waiting for the outcomes and being more frugal of high stakes late stage investing. However, more and more VCs are moving down the line to allocate to early-stage critical technologies that will dramatically change our lives in the next few years.”
As 2024 approaches, the spotlight is on AI development and the growth of sectors like agtech, proptech, and healthtech. While it may not be the peak year for fundraising, the emphasis is shifting towards quality over quantity, signaling a significant reset in the venture capital landscape.