Venture capital is the term used for the financial resources provided by investors to startup companies and small businesses that show potential for long-term growth. It has become a very important source of capital for entrepreneurs who often struggle to secure financing from risk-averse banks. Venture capital investments involve a high level of risk because only some of these fledgling companies develop into successful businesses with significant returns for their investors. The value of VC investments
due to the dot com bubble before falling over the following decade, but has been rising again since 2014.
Why is the software sector so attractive for venture capitalists?
The software sector
dominates the sector in the United States, which can be explained by the presence of Silicon Valley, where a large amount of hi-tech companies are concentrated. For instance, most of the
largest SaaS providers in the world are headquartered in California. These software as a service providers include Salesforce, Zoom, and Workday, which all experienced an uptake in demand for their services due to the global shift to remote working during the coronavirus pandemic.
How has the pandemic affected VC investments?
The coronavirus pandemic caused certain areas of the economy to suffer, but increased demand and sales in others. Physical retail stores, airlines, and restaurants belong to the former, while
ecommerce platforms, remote working software providers, and
streaming service providers have benefitted from people staying home. Online shopping and working remotely are here to stay, even once the pandemic is over, which means that these sectors are likely to remain popular targets for venture capital investments.
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