Seed Investing Trends in Emerging Sectors

Fintech

Both individuals and organizations are increasingly turning to fintechs to help them maximize their earnings and navigate applications for tax credits and government programs. As a result, seed-stage fintechs are attracting significant interest from VCs in 2021. VCs deployed a record $22.8 billion across 614 fintech deals in Q1, according to the latest State of Fintech Report from CB Insights. Seed and angel rounds were the most active stage in the space, accounting for 34% of fintech deal activity in the quarter.

The inrush of early-stage fundraising in fintech reflects new opportunities and innovations in an industry that has historically resisted disruption. This is especially true within the tax preparation sector, where both consumers and organizations are pursuing new products to streamline and optimize the filing process.

While giants like Intuit have a commanding position in the tax preparation industry, specialized startups are carving out lucrative niches. For example, AV seed portfolio company MainStreet helps startups find and claim tax credits via their proprietary software platform. MainStreet’s software links directly with startups’ payrolls to identify applicable credits, while utilizing robust encryption protocols to protect organizations’ data.

Climate Tech

One of the fastest-growing seed sectors is climate tech. According to a PitchBook report, global investors have already closed as many climate-focused funds as were raised during the previous five years combined. In the first half of 2021 alone, $14.2 billion venture deals have been closed worldwide — roughly 88% of the amount raised in all of 2020. The increased activity indicates a belief among investors that sustainable and renewable energy sources will become foundational parts of the economy in the coming decades.

While climate change will continue to impact the global economy in unprecedented ways, innovators and entrepreneurs are rising to meet the challenge. Companies are developing new solutions to mitigate the effects of climate change, and we believe they have the capability to transform not only climate tech, but other sectors as well.

As part of our Seed Fund portfolio, we invested in Nitricity, an energy startup whose technology produces nitrogen at the point of use, drastically simplifying fertilizer supply chains for agricultural applications. By eliminating fossil fuel-consuming transportation, Nitricity’s tech reduces the overall carbon footprint of farming industries while promoting sustainable fertilizer production.

HealthTech

There is also significant momentum for VC investment in the digital health space. According to a report by RockHealth, $14.7 billion was invested in the first half of 2021 over 372 U.S. digital health deals, with an average size of $39.6 million. Of that funding, 59% came from 48 large deals, each over $100 million. Next-generation medical device startups are helping drive this wave of investments.

Medical wearables are seeing rapid growth as consumers look to more directly manage their healthcare. This sector encompasses various types of devices, including fitness trackers like FitBit and the Apple Watch, plus more specialized devices that monitor UV-exposure.

These trends guided our investment in Seed Fund portfolio company Levels, which offers a medical wearable that tracks users’ glucose levels in real time. Users can track these statistics through Levels’ mobile app, alerting them to the impact their diets are having on their health.

Consumer

In Q2 2021 alone, e-commerce was one of the most invested seed sectors, capturing 22% of global funding. Statista projects global e-commerce sales will reach record numbers by 2022, with revenue expected to grow to $6.54 trillion.

The dynamic e-commerce space is adapting to a post-lockdown world, with many startups looking to capitalize on consumers’ newfound expectations for home delivery options. While massive online retailers like Amazon have historically led the sector, disruptive startups are finding new ways to connect consumers to the products they want.

One such startup is Anycart, an AV seed-stage portfolio company that works with traditional brick-and-mortar grocery retailers to offer free delivery and recipes to its users. Anycart also provides cooking and recipe-based original content, creating an all-in-one platform that educates users while recommending relevant products from retail partners.

Crypto

According to a report by The Block Research, VCs made 497 crypto and blockchain-related venture deals during Q2 2021. The second quarter also saw $6.2 billion in private funding directed toward the digital asset industry. These investments represent approximately a 90% quarter-over-quarter increase.

The surge of investments is banking on the young technology having a lasting and disruptive impact on traditional finance markets. Within the crypto sector is a subset of startups focused on providing conventional banking services that are tied into cryptocurrency. Our team identified one such “neobank” as a high-potential seed deal.

Ryze is a cryptocurrency-focused neobank that bridges modern banking and payment infrastructure with Bitcoin’s open monetary network. The company’s goal is to help users operate easily between these two parallel financial systems. As Bitcoin and other cryptocurrencies mature as asset classes, Ryze’s purpose-built platform will help form a supporting network of services to enable widespread adoption of crypto by consumers.

Data

Regardless of sector or industry, companies and governments have embraced the use of big data to drive innovation, gain insight into performance, and increase the accuracy of internal forecasting. A forecast by Analytics Vidhya found that the global big data market is expected to grow from $138.9 billion in 2020 to $229.4 billion by 2025.

The steady growth of big data reflects how integral data services have become, especially for enterprise organizations. Sharing large data sets between services quickly and securely is only becoming more important over time, even for small and medium-sized businesses. The result is a sector ripe for venture capital opportunities.

AV seed-stage portfolio company FlatFile has developed a platform that standardizes and streamlines the process of data onboarding. Their software empowers organizations to spend less time reformatting data into compatible formats and more time collaborating with clients and stakeholders

Global

Innovation isn’t limited to Silicon Valley; VC investment outside of the U.S. has reached record levels in 2021. A report from Reuters shows global venture funds invested $268.7 billion this year, already outpacing total investments of $251.2 billion in 2020.

Investors are assessing startups that offer innovative products abroad, anticipating that these companies will become solid footholds in emerging markets. Especially of interest are startups that provide logistical support to other organizations.

Based in Mexico, Mendel is a fintech that has developed a corporate expense-reporting platform that automatically tracks and reports company expenses. The platform reduces accounting overhead while mitigating fraud before it occurs. Mendel tailors its product line toward Spanish-speaking organizations in Central and South American markets.

Future of Work

Remote work has become a staple of the post-COVID world, with many organizations and enterprises relying heavily on software and services that support online collaboration. In response, the remote collaborative software market once valued at $1.51 billion in 2019 is now on track to surpass $4.69 billion by 2027.

As more organizations of all scales continue adopting remote work policies, we see opportunities for innovative startups to create value in a rapidly expanding market. AV Seed portfolio company BeyondHQ is a collaborative SaaS platform that allows teams to leverage real-time data to provide insight into talent acquisitions and long-term planning. BeyondHQ’s clients use the platform to scale their remote workforce efficiently with minimal overhead costs.