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Last Year Was A Blockbuster For VC-Backed Startups. Here Are Our Top 9 Predictions For What 2022 Has In Store

The startup and venture world has a lot to live up to in 2022, after a year that pretty much broke every record.

With the big caveat that we of course can’t foresee the future—who would have predicted at the start of 2020 that a pandemic would upend lives globally, but ultimately lead to a monster rally for the tech industry?—we nonetheless gazed into our crystal balls and came up with our best educated guesses for what 2022 has in store.

1) VC funding will (mostly) come back to Earth

Global venture funding in 2021 nearly doubled compared to 2020, which was already the second-largest year on record for startup investment. Investors last year poured a whopping $643 billion into startups worldwide as the pandemic buoyed the tech industry.

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Funding across all stages was up, but none more than the late and technology-growth stage. Last year also saw large, nontraditional investors including Tiger Global Management and Insight Partners push aggressively into Silicon Valley’s turf, outpacing investment by traditional venture firms.

Our prediction: The big question going into this year is whether we’ll see an encore in 2022. That seems unlikely, given how many startups are now flush with cash and eyeing exits, and rising interest rates that are likely to make for a more challenging environment for investors this year. While venture investment will likely remain strong in 2022, we expect it will settle down a bit and come in somewhere between the almost $650 billion invested last year, and the $300 billion or so we’ve seen in less heady years.

2) A strong IPO cohort will face some headwinds

Last year also posted record proceeds from public-market offerings and featured some of the largest startup IPOs of all time, including Rivian, Coupang and Snowflake. All told, 2021 was the busiest year on record for IPOs, with 399 offerings collectively raising $142.5 billion, according to IPO research firm Renaissance Capital.

But many of those newly public stocks performed underwhelmingly as the year wore on, and we enter the new year with the threat of rising inflation also weighing on valuations.

Still, 2022 has a strong pipeline of highly funded IPO candidates—there are now well over 1,100 companies on Crunchbase’s Unicorn Board—and rising antitrust pressure from policymakers around the world means M&A has become a much less viable exit option for many of these companies.

Our prediction: Despite some headwinds, 2022 could match or top last year’s IPO market. We offered our bets for 30 companies we think could go public next year, including Stripe, Tanium, Glossier, MasterClass, Plaid and Instacart.

3) Fintech will continue its record streak

Of the record $643 billion in venture capital deployed globally last year, no single industry received more investment than financial services, which got at least $131 billion. Investment went into a host of sectors within fintech, from crypto trading to payments infrastructure to neobanks.

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The buy now, pay later industry has grown massively in the last few years—raking in more than $4 billion in VC investment last year, compared to $1.7 billion in 2020—led by well-funded players including Klarna, Affirm and AfterPay. But even as these startups look to expand into new markets and partner with other companies, they face new regulatory scrutiny over their business models that could dampen that growth.

Our prediction: With fintech powering much of digital commerce in the pandemic world, investment in the sector will remain strong in 2022, with funding likely to go toward the infrastructure layer, embedded services, consumer fintech, B2B payments and, of course, crypto.

4) Crypto investment will remain red-hot

The crypto sector has emerged as its own heavily funded area that’s increasingly distinct from the rest of the fintech industry. Crunchbase numbers show VC funding to crypto startups last year totaled more than $21 billion, far outstripping the $3.7 billion invested in 2020. More than 30 new crypto unicorns were minted last year, accounting for about three quarters of all the billion-dollar startups in the space.

Our prediction: Industry watchers only expect crypto investment to grow this year, with investment likely to go toward infrastructure, compliance and analytics, among other areas.

5) Cybersecurity eyes an encore

The digital world can be a scary place, but for startups in the cybersecurity industry that has spelled massive opportunity. The sector globally hauled in an unprecedented $21.8 billion in VC investment last year, with the fourth quarter of 2021 also setting the all-time quarterly record.

Our prediction: Amid big corporate hacks and data breaches, a multiplication of attack surfaces as more people work from home on less secure networks, and new decentralized environments including the metaverse and crypto platforms, cybersecurity startups will have plenty of opportunities to flex their muscles in 2022. Investors we spoke with predict areas that will continue to draw interest this year include personal ID security, auditing and the trending practice of “shift left,” which is intended to find errors earlier in software delivery.

6) Proptech is poised for another big year

Property tech also had a banner year in 2021. Venture-backed companies in the real estate and property tech space raised nearly $21 billion, Crunchbase data shows, and the sector saw milestones like Procore’s IPO.

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It wasn’t all rosy—there was also the embarrassing collapse of construction unicorn Katerra, which had raised some $1.6 billion from SoftBank and other prominent investors—but, by and large, the sector benefited from both a pandemic-fueled homebuying boom and increasing digitization of office spaces to accommodate the new work environment.

Our prediction: Sources we spoke with say there will likely be more investment in real estate software surrounding the construction and property management spaces—two sectors that were standout areas for investment within proptech in 2021, according to Crunchbase data. They also expect more consolidation in the industry as companies mature and look for exits.

7) Biotech investment gets a big shot in the arm

Sure, the pandemic put a massive spotlight on the biotech sector and drew increased investment to the area. (COVID-19 vaccine-maker Moderna is itself little more than a startup.)

But investors and other experts we spoke with say it’s not just virus-fighting technology that’s prompting a spike in biotech investment. Other areas, from artificial intelligence breakthroughs to new candor about mental health issues, are also pushing more venture investment into the health and biotech sectors.

Our prediction: Expect continued investment this year in areas ranging from AI applications for biotech—which can help researchers analyze massive troves of data and simulate new treatments—to mental health to more accessible health diagnostic tools.

8) Startups aimed at helping us live longer will prosper in 2022

Isn’t all this about helping our species live longer, happier—or maybe just less miserable—lives anyway? While many startups claim to be working on breakthroughs that will change the course of human history, a small niche cohort of companies are literally working on technologies that could potentially radically extend the human lifespan.

Prominent companies in the space that raised funding last year include Tempus, an AI-enabled precision medicine company, Cambridge Epigenetix, a developer of epigenetic tools and analytics, and Chroma Medicine, which is focused on epigenetic editing.

Our prediction: Experts say that along with overall biotech investment, startups in the longevity sector will likely see continued investment interest in 2022, in areas from neurodegenerative disease prevention to age indexing to organ regeneration.

9) The SPAC party is over

Special-purpose acquisition companies, or SPACs, were the hot trend at the beginning of 2021, with nearly 300 of these investment vehicles created in the first quarter. Blank-check acquirers offered a faster and less complicated route to the public markets and have been particularly attractive to startups in riskier but capital-intensive industries like electric vehicles.

Still, the overwhelming majority of venture-backed companies that went public via SPACs in 2021 ended the year trading far below their former highs, Crunchbase News reporter Joanna Glasner found in a recent analysis. Among the worst performers were auto insurance startup Metromile, smart-glass maker View, and tech-enabled baby care products maker Owlet.

Our prediction: The SPAC bubble had started to deflate by mid-2021 and the performances of these stocks as the year wore on doesn’t bode well for blank-check companies to make a big comeback anytime soon. Instead, we expect we’ll see most startups heading to the public markets this year do so via the traditional IPO route.

Illustration: Dom Guzman

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