Palo Alto – December 16, 2021 – WCP is proud to share our 2022 Tech Finance Look Forward.
Seasons Greetings from Woodside Capital Partners! Below is our much anticipated 2022 Tech Finance Look Forward. It’s a 3-5 minute read. Wishing you and yours Happy Holidays and a prosperous New Year!
– Andrew, George, Jon, Jordi, Katie, Kelly, Mark, Michael, Mukesh, Nishant, Ron, Rudy, Ryan, Sam, Shing, Sumida, Tchad, Thomas
– The Partners at WCP
Kelly Porter – Lead Managing Partner – The record-shattering performance of tech finance in 2021 is expected to continue into 2022. We believe that venture investors will continue to pour capital into start-ups at an accelerated pace, having invested over $100B into private companies during each of the last two quarters of 2021 alone. To put into perspective how big this actually is, only three years ago in 2018, total venture investing for the year eclipsed $100B (and at the time, that was huge news). In addition, recently-formed PE firms seeking to invest in technology have mushroomed, and existing PE firms have raised ever-larger funds and increasingly targeted technology opportunities. With $1.3 Trillion in new capital raised in 2021, PE firms now have an estimated $3.3 Trillion in funds to invest. More capital, a steady increase in the number of unicorns, a rich IPO and M&A exit environment, and highly-valued public companies – all are continuing to result in fantastic valuation step-ups between rounds – with the median hitting 2.0x last quarter. The current exit environment is the best in history, and is also expected to continue – with median valuation for VC exits at $950M for public listings and $150M for acquisitions. Key potential risks that could temper the current financing/liquidity opportunity for companies include: a significant public market correction; increased regulation on tech monopolies; increasing inflation and interest rates; a resurgent pandemic; more severe supply chain disruptions; and/or an even greater meltdown in the relationship between the US and China. We are in a boom – barring a Black Swan event, we expect the overall tech innovation industry growth to continue well into 2022, as VC firms are awash in capital having raised $86B and $96B in 2020 and 2021 YTD, respectively.
2022 Sector Summaries:
Andrew Bright – Managing Director – IOT & Climate Tech – WCP Europe, Zurich – Investment in European Industrial & Climate Tech start-ups grew rapidly to >$5B in 2021, across more than 700 companies. Expect this trend to accelerate in 2022 driven by EU Government support, Technical Universities that are getting better at incubating and above all US investors seeking truly disruptive tech and more realistic valuations. Supply chain, robotics & transport will be the sectors in focus. Expect >20 unicorns across >10 European cities by the close of 2022.
Jon Shalowitz – Managing Director – CloudTech, Artificial Intelligence and Customer Experience
Shing Pan – Executive Director – CloudTech, Artificial Intelligence and Customer Experience
Artificial Intelligence (AI) company exits in 2021 were on pace to reach close to $200B in total value, more than triple the amount of exits in 2020 as well as topping the value of all VC investments in the space from 2018~2020. Meanwhile, the tumultuous impact that COVID-19 has had on nearly all vertical industry segments has caused companies to accelerate their adoption of AI and related automation to reduce costs and reliance on manual processes and human labor as well as to improve customer experience through such areas as personalization. Companies who are embracing these new technologies are coming out of the pandemic with greater operational efficiency and levels of customer service, while those who are not are facing an increasingly steep uphill battle to remain competitive. The converging trends of AI, human-machine interaction and customer experience (CX) continue to fuel innovation across virtually all industries. We expect deal momentum will continue in 2022.
Mark Bagley – Managing Director – CloudTech, Mobility, Low Code / No Code (LCNC) – COVID-19 accelerated demand for digitalization of enterprise processes has led IT, constrained by available skilled resources and budgets, to look to LCNC for help. LCNC vendors raised $2.3B during the first three quarters of 2021, more than doubling the total investments they received in 2020. Gartner considers the LCNC market to be worth $13.8 billion in 2021, and worth $86.92 billion by 2027, according to Grand View Research. Through 2022 we anticipate incremental demand driving further investment and also consolidation to deliver scale. While at the same time development of vertical focussed offerings providing more of a turn-key capability of pre-built ready to go capabilities.
Mukesh Ahuja – Executive Director – Smart Infrastructure – It took a consequential election and competition from China for the US to pass the $1 trillion infrastructure bill in 2021. According to market analysis of emerging spaces by Pitchbook, Infrastructure related technologies led both in amount invested ($118 billion in Autonomous Trucking) and number of deals (1,100 deals in EV Charging Infrastructure). With Build Back Better plan and pressure to address climate change, the momentum will continue in 2022.
Nishant Jadhav – Managing Director – Information Security – Ransomware attacks routed via supply chain software providers like Solarwinds ($13B market cap) and Kaseya dominated the cybersecurity industry in 2021 with an average volume of over $100M ransomware transactions per month, an all-time high. In addition to ransomware prevention, IoT security and ongoing cyber risk management remain key growth sub-sectors as the cybersecurity industry continues to consolidate in the wake of the highest revenue multiples across the tech industry.
Ron Heller – Senior Managing Director – Enterprise Software, Workforce, EdTech
Jordi Argente – Managing Director – Enterprise Software, Workforce, EdTech
VC and PE investment levels are at historic highs in the enterprise, and M&A activity continues to be robust. HR Tech has become an increasingly important strategic priority for enterprises due to its role in enabling companies to effectively manage WFH employees, or alternatively support emerging, hybrid in-office and WFH models.VC investment is on pace to approach $20 billion (an all-time high), and PE activity has accelerated with respect to both new platforms and especially add-ons to existing investments. The HR function is evolving from an administrative and people managing role into one that fosters collaboration and people interaction in all its possible dimensions. Work-from-home appears to not have limited communications among members of the same team, but reportedly it has limited communications among members of different teams, contributing to the “silo-fication” of work, threatening knowledge sharing and, if persistent, potentially reducing innovation. Consequently, collaboration technology has moved to the forefront of the HR function. We anticipate accelerated growth in 2022, especially in WFH-related employee communication and engagement, corporate/employee wellness, and remote monitoring and collaboration solutions; also in recruiting, given advancements in AI and automation.
Rudy Burger – Managing Partner – Computer Vision – The global computer vision market is valued at around USD $12 billion in 2021. Year to date there have been 34 M&A transactions involving computer vision companies with an aggregate value of $4.1B. Recent advancements in computer vision have broadened the market to include automotive, education, healthcare, robotics, consumer electronics, retail, manufacturing, and security & surveillance. The popularity of computer vision – especially for facial recognition and automatic image tagging – has already drawn increasing regulatory attention from privacy experts and data governance teams. Data supply chains fed by, and created for, computer vision will be closely scrutinized for security, safety, liability and quality metrics. A supporting marketplace to build, test, ensure transparency and prove ethical data supply chains has started to gain significant momentum. This trend will accelerate through and beyond 2022.
Ryan Phipps – Managing Director – Software & Consumer Internet – After seeing significant demand increases across the market in 2020 fueled by the pandemic, e-commerce has continued to carry that momentum through 2021. Investment into e-commerce reached an all-time high, surpassing $170B. More than double 2020 figures. It was a particularly active year for IPOs, with over $36B raised through public offerings. Looking ahead to 2022, some short-term supply chain concerns remain for retailers. With e-commerce continuing to be a priority for brands and retailers, we expect to see significant investment into technology solutions that enable, facilitate, and optimize those experiences. Some areas include computer vision, AI, personalization, payments, mobile, supply chain, and customer support.
Shusaku Sumida – Managing Director – Semiconductors
George Jones – Executive Director – Semiconductors
We anticipate increased M&A in 2022 with AI/ML, wireless, and automotive sectors most active. The foundation of global digital transformation is AI semiconductors. New architecture of processors is reducing the massive power consumption of data centers, and the world is transitioning to a reality where everything from sensing to decision-making can be done at the edge of the network. Mark Andreessen said that “Software is Eating the World” back in 2011. We would like to add that, in 2022 “Semiconductors will Drive the World”. No software can run without the foundation of great processors and memory. And much AI occurs on edge processors.
Public semiconductor valuations are up 22% year-over-year with 3Q-2021 revenues up over 29%, despite unprecedented shortages and allocations. Private investment in AI/ML semiconductors has already exceeded $7.5B in 2021, up from $2.7B in 2020, and with over 150 start-ups in the industry. Public companies have the balance sheets to consider large acquisitions. As supply/demand imbalances correct, these companies will need to show continued growth to sustain valuations – and we believe that organic growth will likely not be enough.
Thomas Eadington – Executive Director – AgTech, FoodTech – The most important themes of our time – climate change, digitization, sustainability, supply-chains, and COVID-19 – continue to create enormous opportunities in the AgTech and FoodTech industries. In 2021, upstream/farm and downstream/table investing broke records and larger deals occurred throughout most sub-segments. In upstream Agtech, indoor farming companies raised close to $1 billion of new investment. Critically, AgTech saw $20B+ of exits in 2021 which demonstrates significant momentum in the industry. Downstream Foodtech saw $31B of new capital invested with segments including online delivery/logistics, cultured protein, and food waste segments all seeing 80-150%+ year over year funding. We expect strong momentum in the AgTech and FoodTech markets to continue.
Tchad Robinson – Executive Director – Enterprise and Retail Healthtech – The impact of COVID-19 has been traumatic on hospital-based care organizations but will continue to drive rapid transitions and growth within the Healthtech sector in 2022 fueled by over $32 billion in 2021 venture investment, aggressive strategic acquisitions led by Teladoc ($14.8B market cap) and IQVIA ($50.0B market cap), and the $3.0 billion SPAC of LumiraDX. Key growth sub-sectors include: home-based care enablers; diagnostic tools; clinical-grade wearables; remote patient monitoring; and AI-based predictive analytics.
Woodside Capital Partners is a leading corporate finance advisory firm for tech companies in M&A and financings in the $30M-$500M segment. The firm has worked with the best entrepreneurs and investors since 2001, providing ultra-personalized service to select clients. Our team has global vision and reach, and has completed hundreds of successful engagements. We have deep industry knowledge and extensive domain experience in the following sectors: Autonomous Vehicles and ADAS, Computer Vision, Artificial Intelligence, Cloud/Enterprise Software, Cybersecurity, Digital Entertainment & Lifestyle, Health Tech, Internet of Things, Marketing Technology, Networking / Infrastructure, and Robotics. Woodside Capital Partners is a specialist in cross-border transactions, with extensive relationships among venture capitalists, private equity investors, and corporate executives from global 1000 companies. More about Woodside Capital Partners here.
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