PitchBook, the data provider for private and public equity markets, has released the findings from a new survey conducted in partnership with Web Summit, the world’s largest technology conference.
The survey, PitchBook-Web Summit Venture Investor Survey, examines VC investment preferences in emerging technologies like AI, mobility, fintech, and blockchain, alongside investor sentiment of the current economic climate. According to the findings, VCs are most bullish on AI/ML but have concerns over rising valuations and the rate at which unprofitable technology companies have entered the public markets.
The survey was administered to 264 VC investors at Web Summit and Venture, an invite-only event at Web Summit gathering leaders from funds like Seedcamp, Blackstone, Union Square Ventures, Lightspeed Venture Partners, Earlybird and more.
“It’s interesting to see that even with the current questions regarding non-profitable startups, investors are still set on growth as the most important measure. Without any major market correction between private market valuations and public ones, it will continue to drive up the price they’re going to have to pay to invest in early-stage startups.”Paddy Cosgrave, CEO and founder of Web Summit
Interestingly, only 19% of respondents cited path-to-profitability as a criterion when evaluating investment opportunities in emerging technology sectors. In fact, 72% strongly agreed or agreed that growth must come before profit for VC-backed emerging technology companies. At the same time, 86% of respondents were very concerned or somewhat concerned about the rate at which unprofitable technology firms have been going public – an outcome of the current environment of easy fundraising to offset high cash burn. According to PitchBook data, nearly 90% of VC-backed IPOs in 2019 were unprofitable at the time of IPO.
The looming global recession was top of mind for VC investors, with more than half (61%) preparing their fund for a global downturn. However, more broadly, rising valuations were cited as the greatest threat facing the VC-backed emerging technology industry (53%), followed by geopolitical events and regulatory challenges (34%) and competition from corporates and PE investors (13%). Over 86% of respondents agree or strongly agree that growing deals sizes and valuations, especially of emerging technology companies, are negative overall for the venture industry. So far in 2019, median early-stage valuation step-ups have reached 2.14x – a decade high.