If you’re starting a business you’ll need access to funding. But are you in a sector that appeals to investors? Some start-up sectors get a huge bite of the investment pie, while others are left fighting over the scraps. Who’s getting the most right now?
“Marketplace 2.0” is doing really well, with the success of companies like Uber, AirBNB and Kickstarter inspiring disruptive marketplaces in many different industry sectors. Crowdfunding and crowdlending platforms are also seeing investment. The area is becoming more mature, but no one has yet managed to dominate this market, and a good, differentiated business offering can still get financing.
Education is another prominent sector, with both tech and ‘real world’ education businesses receiving funding for expansion and start-ups. The fact that two education companies, 2U and Instructure, have gone public in the US has focused investors’ minds on the potential for such start-ups to scale up well, and both seed capital and funds for expansion are available.
Big Data continues to power along. Reams of data are already available, and investors are funding companies which can process it to create information that supports good business decisions. The key is to identify the right niche and to show deliverable benefits such as a higher mailing response rate, better medication results, or lower cancellations.
Healthcare continues to be a well funded sector. While a lot of funding still concentrates on biotech, equipment and services are also seeing good growth, but it’s digital health that is really thriving. Startup Health says digital health start-ups enjoyed $3.9bn in funding in the first half of 2016 – a record. There’s also a growing subsector for wellness apps, from online meditation to heartbeat monitors. An ageing population in the developed and a growing population elsewhere underpin the fundamentals for the sector.
Cybersecurity, like online marketplaces, has reached its second generation. Perimeter ring-fencing for physical networks has given way to security in the cloud, securing loose networks of multiple devices and operating systems. Consumers, too, want more security and more control over their own privacy, an interesting market niche for start-ups. Old style cybersecurity companies like NCC aren’t doing so well – it has warned that its profits will disappoint – but that’s an opportunity for the new guys on the block.
Those who remember the last great tech boom should realise things are different now, and the companies who won their laurels last time round are not certain to get it right this time. When you track the biggest tech companies on CMC Markets in ten years’ time, they probably won’t be the same ones you see today.
Financial tech with a difference
Fintech used to be about software for banks. Now, it’s more likely to be about cutting out the banks entirely, as peer-to-peer lending, crowdfunding, Bitcoin, Paypal and mobile payments have made traditional banks look not just stodgy but actually irrelevant. In the emerging world, mobile payments companies are leveraging the huge mobile phone networks that already exist to provide new apps – maybe Narendra Modi’s ‘demonetisation’ in India will give the sector a a further boost in India and elsewhere.
The final frontier
Space is a hot investment sector right now, spearheaded by Elon Musk’s efforts. Small, cheap, risky space exploration is replacing NASA as a focus of investment, and some analysts now expected crowdfunded space missions to become a reality within a few years. The Tauri Group says the sector has received $13.5bn of funding since 2000 – the vast majority in the last five years.
What’s not hot?
Some sectors are hot – others are nearly impossible to fund. Commodities, right now, have no investor appeal, so don’t try to start a gold mine. Equally, if you have a tech or services start-up aimed at the oil and gas sector, you’ll find it difficult to get it financed. Transportation, too, isn’t on investors’ radar – with the exception of Uber – and while real estate has had a great run over recent years, some markets are now slowing and finance has become more difficult to raise.