3 Trends Driving the Next Wave of Business Investments If 2020 taught us anything, it's that investment dollars will continue to flow, and detecting the direction of the current is the difference between success and failure.
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It seemed unlikely that we would be on the precipice of a boom in investment volume just a year ago, but that seems to be what we are gearing up for in mid-2021.
April and May 2020 saw a near halt of new investments in the U.S. However, investments picked up rather unexpectedly in the last quarter of 2020 and have steadily risen since then.
This recovery is a testament to American resilience and innovation, the very traits that make America the investment hub of the world.
Though there has been a general uptick in the volume of investment dollars flowing in, the pattern that these investments follow has been greatly impacted by the pandemic and all the turbulence of 2020. Certain industries have emerged as winners while some have not benefitted at all. The structure of our investment portfolios in 2021 and beyond should be informed by these trends.
They say that a man who has a near-death experience wakes up with a new perspective on life and what matters. In many ways, Covid-19 was a near-death experience for the investment world, one that has rapidly changed the assumptions that investors had taken for granted earlier, like what founders look like and what types of investments make sense in a tech-driven global economy and ailing environment.
ESG comes to the fore
Investment in environment, social and governance (ESG) companies and causes were already at an all-time high before the pandemic hit, but as a result of several factors like the social-justice upheavals of 2020 and the Biden Administration's focus on social and environmental issues such as global warming, the numbers have skyrocketed even more.
According to CNBC, ESG funds (sustainable funds) captured $51.1 billion in net new money from investors in 2020, which is currently the highest on record in any calendar year.
This trend is not waning in the aftermath of Covid; rather, it is increasing exponentially as investors become more concerned about the ESG impact of their investments.
For instance, the marked reduction in pollution during the pandemic due to a drop off in traveling to and from work has gotten investors interested in more sustainable ways of traveling and technologies that make traveling less imperative. Fintech and remote-work companies fall into this category, and this explains why they have been among the most successful groups at acquiring investment so far.
Related: Why ESG Investments May Motivate You
The tech-startup frenzy
One of the clearest impacts of the pandemic was the "digitization of all things." We all thought we were in a digital revolution before the pandemic, but nothing quite prepared us for the explosion in tech startups that came in the wake of Covid.
The change in consumer behavior inspired an increase in tech startups around the logistics and delivery industries. We also saw the digitization of real estate, medicine and biomedicine like never before. It is not difficult to see these trends persisting as human behavior adjusts to a post-pandemic world.
ESG and tech are the two "investment megatrends" of today's market, according to Nigel Green of Smart Energy International. It stands to reason that the biggest investment winners of 2021 and beyond are the tech businesses that manage to build their framework on ESG foundations.
For instance, while companies like Amazon, Google and Microsoft are fighting to become Carbon-negative by 2030, it would be foolhardy to invest in a relatively newer tech company with no plans to adhere to ESG standards.
Biomedicine has never been more relevant
With 4 million people dead in the last year and a half, it is clear that the greatest impact of the pandemic has been on the human body and mind. Professionals generally agree that a substantial percentage of the deaths attributed to Covid were a result of other medical and mental-health conditions being compounded by the virus and its attendant restrictions. This has triggered a deluge of investments in big Pharma organizations and other biomedical and biotechnology companies that have targeted the broader effects of Covid.
Rates of depression, suicide and impulse-control disorders have been exacerbated. Binge-eating, alcohol-use and substance-abuse disorders have also gone through the roof. For patients with Parkinson's Disease and schizophrenia, there has also been a marked increase in impulsivity disorders.
The golden rule of investments has always been to invest in systems that solve clear and glaring problems, and nothing has been a clearer problem during this pandemic season than these problems. It is therefore not strange to see companies in the biomedical field acquire significant funding during this period.
We saw the U.S. government dole out billions of dollars in their partnerships with big Pharma companies like Pfizer and Johnson & Johnson in the Operation Warp Speed that developed the vaccines for Covid. But what was probably underreported was the fact that biotechnology companies were at the same time receiving massive investments as they fought to deal with all the other surrounding factors brought up by the pandemic.
Perhaps the most graphic example was Bright Minds Biosciences' success in raising over $30 million in 2020 and going public because of its unique positioning as a leading research company on second-generation psychedelics and serotonergic drugs and its focus on creating solutions for neuropsychiatric diseases.
Biomedical companies like Bright Minds are likely to remain on investors' radars as more than ever, there is a growing awareness of mental-health disorders, the consequences of which are being felt more acutely in the wake of this pandemic.
If 2020 has taught us anything, it is that investment dollars will continue to flow. However, the question becomes, "In what direction will the current flow in the future?" Recognizing these trends is key to making the best investment decisions for your portfolio.