Each year, the Beringea global investment team looks to the year ahead to predict which sectors, technologies, or macro-economic forces will influence the growth-stage dealmaking space. While 2023 proved itself to be dominated by higher interest rates, AI commercialization, and sluggish capital markets, 2024 could be the year cyber security applications broaden, AI is used to truly innovate sectors, and the global exit engine finally revives, among others:
Connected vehicles open new markets for cyber security
Bill Blake, Partner, Beringea U.S.
As vehicles become more connected and electrified, automotive cybersecurity will become crucial to the manufacturers, suppliers and buyers of these vehicles. More potential hack points, affecting more vehicle systems and OEM revenue models, add urgency and risk to the problem. Look for the government to become aggressive in enforcing compliance associated with wide-sweeping regulation to further bring this matter to the forefront, and open up opportunities for scaling cyber security providers to capture a share of this new market quickly.
Vintage years are around the corner
Karen McCormick, Chief Investment Officer, Beringea U.K.
2024, 2025, and 2026 will be strong vintage years for investors. As we saw with the dotcom bubble in 2001 and the global financial crisis from 2008, a sharp initial contraction in the first 12-18 months of the downturn (in this case, what we experienced in 2022) sees businesses scramble to restructure, stay alive, and shore up. The following 12 months (as we’ve seen in 2023) is characterized by businesses either stabilizing, collapsing, or consolidating. In turn, valuations start to normalize and fall in line with public markets.
The next 24 months is therefore marked by companies with strong economics and healthy balance sheets returning to growth and looking to raise at sensible valuations. Meanwhile, we will also see many bootstrapped start-ups born during the recession coming to market to raise.
Tipping point for biodiversity data
Piotr Bukanski, Senior Investment Associate, Beringea U.K.
2024 will see an explosion of biodiversity data, reporting and accounting solutions. COP15 in Montréal in December 2022 was to biodiversity what COP21 in Paris in 2015 was to climate. However, the adoption of these novel solutions to the biodiversity crisis that we face globally is likely to be much faster than the innovation we saw after the Paris agreements, given the existing climate infrastructure that we now have in place.
Following TNFD guidance from September 2023 and CSRD reporting requirements taking effect in 2024, we expect to see a plethora of solutions across data, reporting and accounting, both in public and private markets, targeting corporates and financial institutions, raising meaningful rounds, and building a new, exciting ecosystem.
AI returns, but it’s improved
Ben Bernstein, Principal, Beringea U.S.
Several investment cycles ago, it seemed that every software startup pitch touted its AI and machine learning capabilities. Many of these “innovations” were actually just using off-the-shelf tools and basic algorithms, lacking any real iterative new technology behind it. With last year’s meaningful steps forward in AI (spearheaded by OpenAI and ChatGPT) there are finally new tools to both leverage AI to improve software solutions and to truly innovate in AI-adjacent areas such as cloud computing and cybersecurity.
Consumer spending: Healthy body, healthy planet
Luke Edis, Investment Manager, Beringea U.K.
It is not only the fact that Ozempic (semaglutide) has dominated the headlines throughout 2023 – consumers are waking up to the impact of their consumption on their wellbeing and, in turn, that of the planet. Obesity will impact an estimated 1bn people globally by 2030, and the food and drink industry already generates a third of all emissions worldwide. Second Nature, part of the Beringea portfolio, was one of the four providers recommended by NICE for weight management last year through the distribution of WeGovy - the UK brand of semaglutide.
Brands that can neatly dovetail these twin agendas are building momentum. In our own portfolio, DASH Water – which flavours its sugar-free seltzers with wonky fruit and veg that would have been otherwise discarded – has an explicit focus on sustainable production and healthier habits. While miracle weight loss drugs are certainly set to capture column inches, surely it is better to prevent obesity in the first place – all while cutting back on food waste?
The exit engine gets back up and running
Maria Wagner, Partner, Beringea U.K.
2023 saw a significant drop-off in exits as the venture capital market was rocked by the impact of inflation, higher rates, and the challenging economic environment facing portfolio companies. However, businesses have now re-focused on capital efficiency and capital markets are beginning to open up, as shown by ARM’s $55bn IPO in September.
Likewise, private equity firms sat on $2.3tn in dry powder at the end of September – this cash needs to be put to work, and newly profitable start-ups will look increasingly attractive to private equity buyers.
Transatlantic expansion to drive start-up growth
Harry Thomas, Portfolio Director, Beringea U.K.
The economic picture on either side of the Atlantic is looking increasingly divergent. The Fed has already begun to indicate that it may cut interest rates in 2024; yet, the Bank of England remains concerned that stubborn inflation must be tamed with higher rates for longer.
All of this is trickling through into the economic landscape facing start-ups – the US economy, fuelled by strong consumer spending, delivered annual growth of 4.9% in Q3 2023, while the UK economy shrunk unexpectedly in October. While the cost of living crisis in the UK is easing somewhat, it is clear that the country is still on the road to recovery.
We are therefore expecting more European start-ups to prioritise US expansion to drive growth – but, scaling from the UK into the US remains challenging, so experienced partners and advice will be key to making it a success.
Cybersecurity faces down the AI threat
Jodie Miller, Senior Investment Associate, Beringea U.K.
Given the rapid proliferation of generative AI tools – one survey from Salesforce estimated that 45 percent of the US population is already using the technology as part of their daily work – we are likely to see an increasing threat to the security of our digital infrastructure.
First, bad actors - whether state-sponsored groups, criminals, or hackers - are able to leverage generative AI tools to supercharge their operations, potentially leading to unprecedented mass production of malicious content. Second, these actors are also exploring ways to manipulate generative AI itself, targeting the models that underpin the technology and revealing their inherent vulnerabilities with regards to online safety.
We are therefore likely to see all parties - from public institutions to corporates, start-ups, and generative AI companies themselves - seek cybersecurity solutions that both spot the threats within AI and work to mitigate these risks.