Funding trends and predictions for 2021

2020 brought with it a year of complete unpredictability and difficulty, with the overarching narrative for businesses being in a battle to innovate and survive.

In the tech space, many businesses did more than survive — they completely thrived. While it’s hard to pick out the positives of a pandemic, the revolutionary progress made in the digital space is perhaps something to acknowledge. 

The complete digital transformation that has taken place over the past year has highlighted the need for technology and its role moving forward. Even those industries who were once digital-resistant were forced to embrace change, and in doing so, have reaped many benefits.  

Science and technology have provided a light at the end of the tunnel for many; from enabling companies to carry on “business as usual” with innovative and collaborative software to the incredibly fast production of the Covid vaccine. 

As we venture further into the new year, we’ve put together our thoughts on what the tech fundraising space may look like in 2021, including some sectors we think will fare particularly well.

A hybrid of virtual and in-person networking

The Coronavirus pandemic propelled us all into a new way of work interaction; Zoom calls become the new daily norm and Slack messages became the new ‘watercooler’ chat. 

While remote working has been no bother for many businesses, what has this meant in terms of funding?

Throughout this time, we have seen an increase in startups being both founded and funded outside of those areas deemed the ‘traditional’ tech hub, with teams learning to operate from virtually anywhere and VCs becoming accustomed to doing deals remotely. 

With this new-age of fundraising, should we expect these trends to stay in the future? As founders and VCs continue to navigate the pros and cons of remote working and fundraising interactions, we should expect them to stick with the processes that actually work well, and to bin things that don’t.

For instance, whilst many of us have begun to associate Zoom meetings with strenuous conversations due to poor connections and the ‘accidental’ muting from colleagues turning from slightly funny to now tedious and tiresome, video calls do bring many benefits in terms of efficiency and saving travel time. 

However, it’s likely that the degree to which technology businesses choose to go to in-person events or stick with virtual will depend on what round of fundraising they are working towards. Those in the pre-seed round, for example, may choose to save time and resources by sticking with video call meetings as opposed to travelling far-a-field. In comparison, those in Series B may choose to attend more in-person meetings due to having to explain topics too complex to communication via a presentation or video call.


ESG fever and ClimateTech

Across the globe, the costs of pollution on our beautiful planet are increasingly being recognised. Just a few examples of this include the UK’s target of hitting net-zero carbon emissions by 2050, in September last year China also pledged to reduce its net carbon emissions to zero by 2060, and newly elected US president, Joe Biden, has pledged to invest $2 trillion in clean energy related to transportation, power and building. 

ESG investing, also known as impact investing, was definitely up there with one of the top trends of 2020, with investors pouring a reported $45.6 billion into ESG funds during the first quarter of the year, worldwide.

This year, ESG fever will continue to grow with investors putting more money towards businesses that are solving some of the most pressing issues we face as a planet – including climate change.

Businesses in the ClimateTech space will look likely to prosper in terms of investment, with advancements in the industry looking to help propel the UK closer to achieving that 2050 UK emissions target. This includes more monetary participation from corporate funders. Last year, Microsoft and Amazon pledged to spend an aggregate amount of $3 billion to spend on ClimateTech innovation. Both of this corporate goliaths have started spending, including Microsoft’s investment in Energy Impact Partners, a coalition of utilities backing a portfolio of energy startups, and Amazon forming deals with the likes of CarbonCure and Rivian. 


Data ethics will drive a competitive edge

Data ethic refers to the process of choosing to do what’s right for people, rather than businesses simply achieving the base level of compliance. During a period when time spent online is at its highest, the protection of consumer privacy and data will become even more vital. While the introduction of GDPR in 2018 set out the legal requirements for businesses to follow, consumer expectations are on the rise. It’s no longer enough for businesses to view data ethics as a tick-box exercise. Consumers want businesses to go above and beyond to protect their data and explain clearly how it is being used. 

This year, we should expect the industry to adapt to consumers needs, with mere conversations around data ethics turning into forward-thinking action for many businesses.

Google reported that in a recent survey of its clients in Europe, a large majority are at present holding discussions about data ethics at a leadership level, with one in five saying they have “established a privacy centre of excellence that has prepared them for regulatory change”.

A siren call for more diverse investing

A report released last year by Atomico on the “State of European Tech” revealed some shocking statistics around diversity in the industry. According to the report, around 83 percent of all founders who responded to the survey identified as White/Caucasian, with only two percent identifying as Black/African/Caribbean. Of this two percent, none raised external funding. 

A lack of diversity among investors undoubtedly leads to biases in the tech investment decision-making process. If we’re going to tackle some of the planets greatest challenges with technology, it’s absolutely fundamental that we see greater diversity and inclusion at the highest level in terms of both venture capitalists and investors backing diverse startups. 

Fortunately, it seems VCs are beginning to receive more pressure from legislators and their own investors to change this huge lack of diversity. London-based VC firm, Ada Ventures, launched their angel investor programme last year that seeks to address the lack of diversity, creating a generation of investors who may have otherwise been excluded from the industry.  As a result of these increasing pressures to change in the industry, we should expect to see diversity become a vital part of investment strategy in 2021 and beyond. 


Covid fads and fading investment

While Covid-19 has given rise to a wave of innovative businesses in response to the ‘new normal’ situation we have found ourselves in, it is likely that with the widespread roll-out of the new vaccines, we should expect certain sectors to switch back to the old normal just as quickly as they arose.

Online education platforms, live-streaming and virtual events, and online fitness classes are all examples of businesses who have benefited from increased investment during the pandemic. One might expect that when it’s safe to do so, many people will favour those in-person experiences that we have begun to crave so badly. From those gym class high-fives after getting through a gruesome workout, to the sparking-up of spontaneous conversations during networking events that lead to a lifetime of friendship; in some cases, virtual experiences are no match for real human interaction.

As a result, we might expect losses in investments in these ‘Covid-born’ trends that are unable to survive post-pandemic.

We hope you enjoyed HdE Group’s funding predictions for 2021. Which trends do you anticipate for the year? Let us know!