Inside VC's 2022 Predictions

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Inside.com Part of   Network December 31, 2021

The deal count and valuations of China’s private tech industry will diminish significantly in 2022. Venture capital firms that invest U.S. dollars into Chinese startups saw a 65% YoY drop in funding in 2021 — down to $4.2B from $12B in 2020.  More: VC inflow is a leading indicator that usually takes a few quarters to come into effect — meaning a downtrend in deal count and valuations wouldn’t likely start to show until Q2 or Q3 of 2022. The number of new China-focused VC funds investing U.S. dollars has decreased by 67% in 2021. Funding into China-based VC firms that invest in startups using the yuan has declined 79% in 2021.

AngelList’s new $25M Early Stage Quant Fund will see promising returns and will inspire increased investment into quantitative venture capital. Not only will AngelList double down on the initiative with a larger fund — other companies with similar data advantages will establish quant funds of their own. More: In its new quantitative venture capital fund, AngelList tracks hiring velocity across its 2-million-user AngelList Talent Platform. Of the 17,000 potentially eligible companies, AngelList will approach the 20 or so companies displaying the highest hiring demand each quarter. Not only could platforms like LinkedIn and Indeed essentially copy what works for AngelList, but we could see firms like Amazon spin up a fund based on another front-running metric such as demand for AWS instances. The quantitative funds of established companies like AngelList, LinkedIn, and Amazon will no doubt benefit from being able to pull from their massive oceans of proprietary data. However, other quant VC funds most likely created by established data scientists could also potentially play off of open-source data or blockchain transparency.

2022 will see a number of high-profile startups crash and burn. Questionable due diligence came as a caveat to the accelerated deal-making and high-flying valuations of 2021. Many of the flaws overlooked by VCs in 2021 may turn out to be malignant in 2022. With $100M earlier stage rounds becoming normalized these days, the potential risk of poor due diligence is likely to have a more profound effect.  More: Over 8,000 U.S.-based companies alone raised venture capital in 2021. As a result of needing to be the first firm to offer term sheets, investors are cutting corners on due diligence. Only about 50% of venture deals in 2021 required legal opinions compared to 75% in 2018.

Following Katie Haun's lead, Chris Dixon will leave Andreessen Horowitz to launch his own crypto-focused venture capital firm. The reasoning behind doing so is quite obvious: he will own all the profits from his funds. More: Since Dixon didn't leave along with Haun to start a fund together, it's likely that he will open his hypothetical firm as a solo GP. Given his reverence in the crypto community, Dixon will have no issues finding elite-level deals. With his experience and connections as an a16z partner, Dixon should have no difficulty finding LPs.

As the western world strengthens its focus on health and wellness, the investment received by sleep-tech startups will double YoY in 2022. Around $800M worth of venture capital dollars were invested into sleep-focused startups in 2021 compared to $488M in 2020.  More: Supermoon capital launched its initial $36M fund as the world’s first sleep-focused venture capital firm.  The hot sleep-tech company Eight Sleep may get between $300M-$500M alone in its next Series D, given its growth combined with the current market. The company raised $86M in August 2021. 37 sleep-focused companies raised capital in 2021.

Cell cultured meat products will begin to go mainstream in 2022 as the companies behind them see growth and higher capital inflows. As the price to grow artificial meat has come down by a few orders of magnitude, it is now starting to become an economically viable business. More: ~70 companies are growing meat in bioreactors. Only in 2020 did the first cell-cultured meat products become commercially available in Singapore from the San Francisco-based company Eat Just. A number of cell-cultured meat companies like Israel-based SuperMeat and California-based Finless foods look to gain approval to sell their products commercially in 2022. SuperMeat’s cultivated chicken burgers cost $2,500 each to make in 2018, but now cost just $10. In 2017, Finless Foods needed $660,000 to produce 1 kilogram of cell-cultured bluefin tuna. Now the process costs just $450. ESG conscious venture capitalists should love the industry's focus on sustainability.

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Trevor Grant is an entrepreneur, investor, and writer based out of Chicago, Illinois. His primary area of interest is web3 venture capital, social tokens, and infrastructure. Other pursuits include screenwriting, yoga, and traveling. He holds a BS in biomedical engineering.   Connect with him on Twitter @trevorisonline Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford.

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