There was a complete agreement among the dozens of VCs we spoke to that the excitement surrounding some of the sectors that created very attractive investments over the past two years has now cooled and could perhaps even completely freeze over in the coming year. Many of the VCs highlighted crypto as a sector that would be significantly affected by the happenings in the field over recent months.
Another sector that many investors pointed out as problematic was HR-tech, which received a massive boost due to the challenges presented by the Covid-19 pandemic and the huge competition for tech talent at the start of 2022. The return to offices combined with work from home, together with the cooling down of the labor market due to the global financial slowdown and the layoffs in the sector, have meant that the solutions offered by HR-tech companies aren’t as urgent as they used to be for HR managers. In addition, due to the fact that integrating HR management systems incur additional costs, small and medium-sized businesses prefer to cut back in this area and continue to recruit through traditional channels.
The global financial slowdown is one aspect that is most influencing the decision-making of VC investors. Therefore, several of them mentioned how the crisis could result in a decline in investment in some fintech applications.
As to the sectors that are expected to capture the hearts and pockets of VC investors over the coming year, there was a near-consensus regarding at least one field, with Generative Tech the newest sector that will receive much of the attention.
Vidra from Remagine Ventures said: “We’re excited by the potential of new technology: for example, generative AI is dramatically reducing the cost and barriers for content creation and we will see generative AI and automation enter every role in the company, and tackle different use cases across verticals.”
Unsurprisingly, there was no agreement among investors in regard to the sector most identified with Israeli high-tech, cybersecurity. Those VCs who focus on cybersecurity of course believe that there is still more to come from the sector and that the market is still in need of unique solutions. According to their approach, cyber threats are only increasing in sophistication, and the growing use of digital applications in every field presents challenges that have yet to have been solved, meaning that we will see many investments in the sector in the coming year as well. On the other hand, many investors pointed to other processes that could cool the excitement surrounding cybersecurity, for example, a global recession that will cause many companies to cut back on cyber-related expenses.
Despite the fact that their job description requires the ability to forecast the future – when trying to extract predictions from VC managers regarding the industry in which they are active, the answers they provide are mostly vague, extremely cautious, and perhaps even conservative. There’s nothing to hint at the proven capabilities of these experts to look beyond the present and earmark companies with groundbreaking technologies and paradigm-breaking entrepreneurs. After all, what are the actual superpowers of VC investors if not to look at a sector, company, product, entrepreneur, or even an abstract idea, analyze them and try and estimate how they will act in the future?
If their prediction regarding an object is positive, they will provide an investment. The size of the investment also reflects their level of trust in the chance/risk of the investment providing a positive return. At the same time, if their forecast is that at the end of the road, that can last even several years, there is unlikely to be a decent return – they will reject the request to invest. Therefore, we were slightly surprised that some investors tried to elegantly avoid an answer, while others even consciously chose not to answer one of the 10 questions included in the survey. The question was: “What sectors in high-tech should we look out for in the coming year – and why?”
But there was at least one investor who tried to explain why it is difficult for him and his colleagues to share with us what VC investors see in their crystal ball.