Where Do VC Funds Go?

Venture capital (VC) is a form of financing that provides funds to startups and emerging companies that have high growth potential. VC funds are often interested in investing in innovative sectors that can disrupt existing markets or create new ones.

In this post, we will look at three such sectors: AI, biotech, and crypto. Let us know which sector you think needs more funding from the fairy godparent of startups.

Artificial Intelligence (AI)

Beyond the general decline in VC investments, some subfields within AI have become focal points for funding. Natural Language Processing (NLP), a subset of AI dedicated to the interaction between computers and human languages, has emerged as a particularly attractive area. This surge in interest can be attributed to the increasing demand for advanced language models and conversational AI applications.

In addition to IBM’s $500 million Enterprise AI Venture Fund, another notable investment was by SenseAI, which launched a maiden venture capital fund with a target corpus of Rs $25 million to invest in AI startups. Seedtable offers a comprehensive list of 30 premier venture capital investors in at least five AI startups over the past year.

Furthermore, the intersection of AI with emerging technologies like quantum computing and edge computing has attracted significant attention. VC funds are flowing into startups that explore the synergies between AI and these cutting-edge technologies, paving the way for groundbreaking advancements in the coming years.

Biotechnology

The first quarter of 2024 is shaping up to be a strong period for VC investment in biotechnology. Precision medicine and immune dysfunction therapy, for instance, are becoming focal points for venture capitalists seeking transformative breakthroughs.

Mirador Therapeutics has secured a record-breaking $400 million in a series A funding, marking it as the largest funding round of the year so far. The biotech company is dedicated to creating precision medicines for inflammatory and fibrotic diseases that impact the gastrointestinal tract, lungs, and skin.

Alumis has clinched the top spot for the biggest private biotech investment of 2024—at least for now. With a remarkable $259 million raised in a series C round, the company is set to advance its portfolio of oral therapies targeting immune dysfunction and commence a phase 3 trial for their lead product, ESK-001, to combat psoriasis.

As the world grapples with issues of food security and environmental sustainability, startups working on lab-grown meat, plant-based alternatives, and other innovative solutions have also found favor with VC investors who want to make a positive impact on both health and the planet.

Cryptocurrency

Following a tumultuous year of scandals and collapses, crypto finally saw a glimmer of hope. Deal value increased for the first time since Q1 2022, reaching $1.9 billion across 326 deals in Q4 2023, according to data from PitchBook’s Emerging Tech Research released in February 2024.

Legal victories achieved by Ripple and Grayscale in the past year, along with the rising popularity of decentralized finance (DeFi) on Solana, are contributing to the current surge in the crypto VC landscape. Furthermore, the recent approval of a bitcoin ETF by the SEC in the U.S. is driving increased demand for the leading cryptocurrency.

This is proof that although 2023 was not the best year for VC investments in crypto, it’s not a lost cause. At least that’s what some of the most active crypto-focused venture capital firms are saying.

• “There’s a shift in momentum, and it might represent the beginning of a new bull cycle in the crypto market,” Yat Siu, Animoca Brands co-founder, said.
• “Our view is that the confluence of 1) advancing regulatory clarity (primarily ex-U.S.), 2) maturation of protocol infrastructure, 3) institutional participation, and 4) innovation in how users engage with on-chain products sets the stage for a bright 2024,” a Coinbase Ventures representative asserted.
• “Crypto networks are fantastic tools for organizing and motivating people all around the world to contribute to a common model,” Kyle Samani, a managing partner at Multicoin Capital, said about the optimistic opportunity for crypto in AI in 2024.
• “While 2023 was about building behind the scenes, I’m bullish on Web3’s innovation and adoption accelerating again in 2024,” Abhishek Saxena of Polygon Ventures said about the implications of 2023’s foundational building during the bear market for Web3 in 2024.

Beyond traditional VC funding, decentralized finance (DeFi) protocols and non-fungible tokens (NFTs) have witnessed a surge in community-driven funding models. DAOs (Decentralized Autonomous Organizations) have become increasingly popular as a means for communities to collectively invest in and govern crypto projects.

Regulatory developments are also influencing the distribution of VC funds in the crypto space. Projects focused on compliance solutions and regulatory frameworks are gaining traction, reflecting the industry’s maturation and a concerted effort to address regulatory challenges.

Conclusion

While the overall VC landscape in 2023 reflects a nuanced story of highs and lows, the intricate details within each sector unveil a tapestry of innovation and resilience. The diversification of investments into specific technologies and applications within AI, biotech, and crypto underscores the adaptability and forward-thinking nature of venture capital firms.