The places that venture capital (VC) is flowing to is a lead indicator of future investment in people and places. VC investment is returning to the long-term trend after a pandemic-induced boom, while advanced and emerging tech sectors are seeing faster growth.
Return to trend
In spite of the weaker economic backdrop, global venture capital volumes were sustained into 2022 as funds consolidated into larger vehicles. Some $223.6 billion capital was raised in the first nine months of 2022, representing 84% of 2021 volumes alone. Dry powder was at a record high, with $585.5 billion ready to be deployed at the end of last year.
While lots of capital is waiting in the wings, challenging public markets make exits difficult and fund performance has weakened. The number of VC-backed unicorns has fallen: at the height of the pandemic-induced tech boom, an average of 40 unicorns were created each month, but with valuations under pressure, 2022 has seen these numbers return to long-term trend of around ten (see chart).
Number of newly created VC-backed unicorns fall from pandemic highs
Return to long-term trend
Source: Savills Research using PitchBook Inc (PitchBook data has not been reviewed by PitchBook analysts)
Go with the flow
Silicon Valley, home to Sand Hill Road (the global epicentre of VC) propelled Silicon Valley and the wider Bay Area to an early lead in tech. But the global diversification of funding in the last decade was a catalyst for the development of new tech centres and cities across North America, Europe and Asia – notably China – rose to prominence.
Asia’s share of global VC investment rose from just 15% in 2007, to a peak of 67% in 2018. This was driven by China where home-grown tech companies made cities such as Beijing, Shanghai and Hangzhou global tech hotspots. Since then, Asia’s share of global VC declined to 18% in 2022 as China’s crackdown on its tech sector took effect, slowing fundraising activity.
Share of VC capital raise by region
Relative decline of Asia, driven by slowing fundraising activity in China
Source: Savills Research using PitchBook *as at 30 September 2022 (PitchBook data has not been reviewed by PitchBook analysts)
Advanced and emerging tech sectors outperform
As the large and established ecommerce and software sectors have matured, new advanced or emerging tech sectors have outperformed. The rate of growth of VC investment into CleanTech and AI (both emerging sectors) in the last five years has grown much faster than that into e-commerce, for example (see chart). Understanding the places where the capital targeting these emerging sectors is flowing to is important as a lead indicator of future investment in people and spaces.
Advanced and emerging tech sectors have seen high rates of growth
Venture capital growth, last five years (2017-22), selected sectors
Source: Savills Research using PitchBook (PitchBook data has not been reviewed by PitchBook analysts)
