Loading...

VC cash is adding rocket fuel to startups and disruptive businesses | Baker Tilly

Baker Tilly professionals work on a project overlooking the city

Article

VC cash is adding rocket fuel to startups and disruptive businesses

Dec. 3, 2021 · Authored by Chase Murphy

Making the last steps of the home delivery process more customer-friendly. Finding a parking space in a large lot more easily. Using 3D-printing technology to create safer rocket fuel. What do all of these have in common? They represent the work of new businesses seeking to disrupt an existing market with a better idea — and all are being helped by an infusion of cash by venture capital (VC) firms.

While the COVID-19 pandemic caused massive worldwide economic distress in early 2020, there was a sense of optimism early on that it would be a short-term disruption. As conditions eased in the summer of 2020, investors looking to deploy capital (and thinking of the fiduciary obligation to put that capital to work) had almost a sense of panic about how to work through the deal flow backlog. At the same time, visionary entrepreneurs and VC firms have seen the past two years as a time of fantastic opportunities due to the way the pandemic reframed how multiple industries interact and serve their clients, and individuals changed the way they worked, shopped, went to school and socialized.

Firms involved in information technology have been the focus of most merger and acquisition activity in 2021. (See, for example, California regional M&A update: H1 2021 and Texas regional M&A update: H1 2021.) VC firms are intrigued by companies driven by innovation, disruption and evolution and are looking to invest in businesses that are launching disruptive products and services in multiple sectors of the economy, targeting a variety of customers.

From the perspective of the business owner or entrepreneur, all types of investors are looking to get involved at every stage of a business life cycle — startup and angel investors; friends and family; seed round investors; all the way through to more mature and sophisticated VC funds looking to help a company go public. VC firms are ready to participate in fundraisings from $1 million to more than $100 million.

Preparing for new investment

Chase Murphy

Chase Murphy

Principal

Related sections

Article Tags

Disruptive businesses

One of the reasons the broad category of “information technology” is attracting so much VC money is that the definition is expanding of what an information technology company is. Professional services firms, food delivery services and professional sports teams are increasingly depending on technology to serve existing and new markets. Investors in some multigenerational family offices are looking to be key players in areas far removed from where their families invested in the past.

In the case of some family offices, there is so much “dry powder,” so to speak, that a $1 million investment in a company offering a disruptive product or service is exciting to the family member making the deal and, ultimately, a low risk to the family fortune in case the investment does not pan out.

Here are some examples of “disruptive” businesses where VC investors and family offices are providing critical funding:

Accounting software. Automating what has historically been a manual process with individuals working on data manipulation, data entry and tax return preparation, and freeing up professionals to focus on client business needs that will help grow the business.
Caregiver support network. Taking a traditional, literally hands-on service industry of caregivers for children, seniors or people with disabilities, and using technology to create an ecosystem that will support both caregivers and those who need different types of health services.
Package delivery. Companies like FedEx and Amazon revolutionized the way people shop, but throughout the pandemic, the number of packages delivered has risen at an exponential rate. Community mailrooms that had 10 or 20 packages a day now struggle with managing hundreds of deliveries each day. So services are developing that will accept packages at a central, local site, then customize the delivery method to the customer’s door at their convenience.
Parking technology. Instead of venues like stadiums, arenas or airports venues depending on humans to direct drivers where to park, increasingly sophisticated technology exists that leverages motion-sensing activity to identify open spaces in real time and directs people to the right level, section and spot using lights and arrows.
No checkout shopping. Amazon and other companies have created a grocery store shopping experience where technology tracks shoppers as they move through the store and remove items from shelves, and as they leave, the store automatically tallies what they have “purchased” and deduct that amount from the customer’s credit or debit card.
3D-printed rocket fuel. Solid fuel rockets use highly combustible and dangerous fuel. 3D printing technology is being used to produce rocket fuel, almost like a candle, which isn’t combustible until it’s contained within a launch system.
Esports. The past few decades have seen an expansion of the ecosystem around esports that are starting to account for a larger segment of the entertainment and sports entertainment market.

All of these services and technologies represent entrepreneurial ideas nurtured in classrooms, laboratories, garages and basements that have now reached a point where significant amounts of capital funding are necessary to bring to market or expand a customer base.