3 Exciting Sectors For Venture Capital In 2023

Conditions are tipped to remain challenging for the Venture Capital space this calendar year. But there remain bright areas that could still attract plenty of investor interest.

2022 was a tough period for the venture capital (VC) sector.

In fact the landscape became increasingly barren as worries over high inflation, central bank rate hikes and a potential recession dominated sentiment.  KPMG says that VC investment worldwide fell to $75.6 billion between October and December. This represented the fourth successive quarterly decline.

As for 2023, KPMG says that the global VC market globally will likely “remain challenged” during the first quarter. Analysts over at Bain Capital agree. They note that “low deployment levels will likely stick” as VCs seek more attractive deals.

3 areas tipped for strong growth

But it’s not all doom and gloom. VC experts have identified a variety of sectors which could attract significant funding during 2023.

There is certainly plenty of funding waiting to be deployed following robust fundraising activity in the first half of 2022. Bain Capital predicts that investors were sitting on record dry powder of $586 billion last year, up from $396 billion just five years earlier.

Here are three industries that are expected to command large influxes of VC capital in 2023.

Energy transition

KPMG says that “the ongoing energy crisis in Europe and concerns about sustainability and climate change” will persist and that, as a consequence, “the broader energy sector will likely remain very hot” with VC investors.

More specifically, KPMG suggests that investors will continue to make “big bets” in companies that are involved in “alternative energy technologies, electric and hydrogen powered vehicles, and battery storage.”

Last year, nuclear reactor engineer TerraPower and battery technology business Group14 Technologies reported two of the three biggest fundraisings in the US. They secured a total of $830 million and $614 million respectively.

Elsewhere, Chinese electric vehicle (EV) manufacturer GAC Aion raised a mammoth $2.5 billion in 2022. EV manufacturers Einride and Volta Trucks, along with lithium-ion battery play Verker, made up the three biggest VC deals in Europe last year.

Cultivated proteins

VC interest in laboratory-grown meat is also tipped to grow strongly over the current 12-month period. This is perhaps no surprise as consumers — driven by health, ethical, and environmental concerns — plump for animal-free diets in increasing numbers.

According to analysts at Custom Market Insights, the cultured meat industry will be worth around $450 million by 2030. That’s up considerably from the $129.7 million the market was judged to be worth in 2021.

The US Food and Drug Administration’s (FDA) decision last November to approve Upside Foods’ lab-grown chicken for human consumption is seen by many as a watershed moment in the sector. The FDA said then that it was “in discussions with multiple firms about various types of food made from cultured animal cells.”

PitchBook have predicted that startups in the cultured meat category “will see record funding in 2023 as the US nears regulatory approval.” It notes that VC funding across the sector quadrupled after Singapore gave Eat Just’s synthetic chicken the thumbs up back in 2020.

Early-stage companies like lab-produced-chicken-specialist Believer Meats and cultivated seafood maker BlueNalu are taking steps to supercharge food production. This will likely attract huge inflows of capital from VC investors.

Artificial intelligence

The digital revolution has been hastened by the onset of Covid-19 in 2020 and the evolution of consumer and worker habits during lockdowns. Artificial intelligence (AI) in particular has emerged as a white-hot sector which is tipped for strong and sustained growth.

Last year the International Data Corporation (IDC) predicted that AI revenues would soar by almost a fifth year-on-year to $432.8 billion in 2022. And it forecast the figure to break through the $500 billion barrier this year.

The IDC said that “AI has emerged as the next major wave of innovation,” noting that “advancements in language, voice and vision technologies, and multi-modal AI solutions are revolutionising human efficiencies.”

This in turn has led to a boom in VC interest in machine-driven thinking and firms at the forefront of this rapidly growing industry. Crunchbase notes that approximately 9% to 10% of VC funding in recent years has focused on AI startups.

At $1.5 billion, defence company Anduril attracted more Venture capital in 2022 than any other US startup. Its technologies — which include drones, submarines and surveillance systems — are controlled by the company’s AI-powered Lattice operating system.

Crunchbase says that “robotics, autonomous vehicles and enterprise software” are pioneering the rapid growth in startup funding. But it adds that other sectors are following closely behind including biotechnology, computer vision, fintech, language processing semiconductors, logistics, security and education.

Perhaps unsurprisingly KPMG has predicted that investor interest in AI businesses will continue to grow over the long term. It says that VC capital will be especially robust “in game changing areas like generative AI and conversational AI,” too.