From when startups started becoming a thing, fintech seemed to be pulling all the funds, particularly in Africa where there was a broken payment system to be fixed, amongst other things. However, recent data suggest that three sectors are beginning to catch the investors’ interest and attract significant funding.
One thing I know is that most investors generally look for sectors where they can get volumes of repeated activities which will translate into revenue. This explains why fintech has been attracting the bulk percentage of funding. In the payments space, there are millions of repeated transactions that translate into revenue and make it easier for the business to grow. In lending, they also look out for short-term lending cycles because they want to make sure that the funds can be recycled in a short time. All of these make for a good market volume and make it easier for the business to scale. I think that investors are also seeing the same trait in these other sectors where they are beginning to inject increased funding.
One of them is the Blockchain technology sector, which covers a lot of startups in cryptocurrency, and very recently NFTs. This sector holds a huge potential across several industries, particularly finance, real estate, and politics. This is also a sector that many governments across the world are interested in, worried about or a little of both. Although the unpredictable crash in prices of cryptocurrency has some people wary of investing, what no one can dispute is that this sector will hold more control over the future than we want to admit right now.
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The Blockchain sector is still about people leveraging on money, trying to build instruments that can represent money. People are investing in it, are using it to trade and so it comes down to lots of repeated activities, market volume, and revenue.
Another sector is that of advanced manufacturing and robotics, data also says that we are seeing an increase in funding for this sector as well. Investors seem to be picking interest in them and this is no surprise. The manufacturing sector is one that uses a lot of labor and at a high cost. Businesses in advanced manufacturing and robotics, are really just trying to achieve cost management and efficiency.
Relative to labor costs, the average cost of a robot has fallen by more than half, presenting investors with a potentially lucrative investment. The cash inflow to this sector will increase even more as capital investors begin to see the potential in applied robotics. If you can reduce the production costs, you can make your goods cheaper and more accessible, and still increase your profit margin.
The third one of them is the Agritech sector where startups are using technology to solve agricultural problems. This sector is also attracting significant funding compared to what it used to be before 2018. Pitchbook revealed that as of Q3 2018, the Agritech sector globally had attracted investments of $1.6 billion, with the median deal size in the $10 million range. This figure has increased in leaps every year since then.
The money and market volume comes to play here again because it is known that agriculture has a large market. There is still a lending arm trying to make funds available to farmers within the short planting cycle. Some startups help the farmer with technology that they usually would have paid for and get the returns in form of profit sharing. This is a bit of direct lending. The startups would be providing technology on a large scale in order to reduce production costs and troubles. Another aspect can be helping them with access to the market using technology, which is part of cost-efficiency.
We can also not rule out the fear of a global food crisis which might be doing more to attract funds to the sector. The global population continues to expand at a rapid rate, and in the spirit of sustainable development, food growth has to increase at the same pace. This is why most startups in this sector are either trying to reduce wastage or increase production.
One thing that entrepreneurs can generally pick out of this is that investors favor those businesses that present them with a Short-term revenue opportunity. On the other hand, market volume and recurring revenue are primary drivers of increased investment levels.