Startups in sectors that have seen a sharp decline in funding may gain recent attention from investors due to recent industry funds that have closed this yr.
In areas ranging from consumer products to apps and games, U.S. enterprise capital firms have raised recent capital to speculate in industries where funding levels remain drastically below the peak. This, along with moderate growth in enterprise investing in the first quarter, suggests that some sectors may have hit cyclical lows last yr and needs to be heading higher.
To get a sense of where the newly allocated capital is heading, we compiled U.S. fundraising data for all the recent startup investment vehicles announced this yr. We then looked at some of the sectors investors plan to focus on.
They will largely proceed to finance the hot topics of recent quarters, especially artificial intelligence. However, we have also seen a variety of funds targeting areas that could be considered more unfavorable. Let’s take a closer look.
Application economics
Most of us are more dependent on our apps than ever before. Still, enterprise investment in app startups has been declining for years.
Behind Crunch Base The data shows that funding for U.S. corporations related to the app economy peaked as a percentage of total investment in 2016. In 2023, it hit its lowest level in a decade.
It’s interesting to see it against this background Andreessen Horowitz of its recent $7.2 billion fundraising, it has committed $1 billion to an app-focused fund. You can expect AI to factor heavily into this strategy given the company’s strategy expressed enthusiasm for AI-powered tools for companionship, well-being and creativity.
Gambling
After several weak quarters, funding for gaming startups has increased this yr, driven by a renewed surge in early-stage deals. New funds also need to reap the benefits of the momentum.
Earlier this month, Bitkraft ventures, an investor focused on early-stage gaming, closed its third fund on $275 million. Last week, Andreessen Horowitz announced it had raised $600 million for a gaming-focused fund in a massive total fundraising.
Consumer
Consumer-focused startups have not been a favorite among investors recently. VCs have essentially abandoned the direct-to-consumer startup model, and they do not support many consumer product startups either.
Maven Ventures, nonetheless, provided a little bit of encouragement to the space. The Silicon Valley company closed $60 million on its fourth fund this month, continuing its strategy of “investing in seed-stage software startups that capitalize on emerging consumer behaviors and trends.”
Meanwhile, Andreessen Horowitz is excited about the combination of AI and consumer-facing investing. Recent post notes that: “Consumer software companies are among the most valuable in the world (FAANG is all about consumer products) and were founded during a major platform or product cycle change. We hope this time will be no different.”
Web3
Web3 startups – defined as those in the cryptocurrency and blockchain sectors – saw a slight increase in funding in the first quarter of this yr, based on Crunchbase data. This was the first quarter-over-quarter growth for the space, once one of the busiest in the enterprise landscape since the fourth quarter of 2021.
Based in San Francisco Hack VC, a Web3-focused enterprise capitalist, raised $150 million for a recent fund in February. According to Crunchbase data, it is investing heavily, participating in over a dozen high-profile rounds this yr.
Transactions are also concluded at high valuations. For example, in March, three global cryptocurrency-related corporations crossed the $1 billion valuation threshold to attain unicorn status: BerachainEthereum-compatible blockchain for financial applications, Io.neta blockchain service enabling the sale of surplus graphics processors and A network of polyhedraWeb3 infrastructure company.
Cybersecurity
Cybersecurity is among the sectors where U.S. funding rose in the first quarter, after hitting a multi-year low two quarters earlier. Again, there are rounds counted in a whole bunch of tens of millions, per Crunchbase dataas does discussion of potential exits for some of the better-funded players in the space.
Just in time for a rebound, based in San Francisco Ballistic ventures announced in March that it had raised $360 million for an oversubscribed second fund that may invest exclusively in cybersecurity.
What got here out is back on top (with a touch of artificial intelligence)
Growing interest and investment in sectors that hit cyclical lows last yr does not imply enterprise capitalists are turning away from their favorite investment topic: artificial intelligence. On the contrary, there is a wide selection of applications of artificial intelligence in almost every industry.
Still, it’s encouraging to see the startup sectors and funds with capital resources dedicated to those spaces rebounding.