Here's What You Need to Know About the Changing Face of Venture Capital
The picture of a venture capitalist is changing. Gen Z angels, digital natives and purpose-driven investors are leading the charge in venture capital, aiming for higher returns with less risk.
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Picture a venture capitalist. You might imagine an older white man in a suit, maybe with a gray beard. But the reality is that the VC landscape is changing — rapidly. Today, VCs are getting younger and more diverse. The rise of Gen Z angel investors perfectly illustrates this shift.
There are more than 20,000 Gen Z angels investing in startups globally. And they're putting their money into some of the most innovative companies around, from the Web3 space to clean energy. On a broader level, recent data shows that the average age of the typical VCT investor has dropped by 11 years since 2017.
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Young people are seeking higher returns
What's driving this trend? For starters, everyone under 58 is seeing the highest inflation of their adult lives. At the same time, young people have never seen healthy bond yields or bank deposit rates. The stock market offers little in the way of safety or stability, either, with millennials experiencing three "once in a lifetime" crashes in the last 20 years: the dot-com bubble, the financial crisis and Covid-19. Today's bear market, too, is at risk of turning into a worse crash.
With low public market returns and inflation still high, young people are searching for alternative investments that offer higher potential returns. And they're willing to take on more risk to get them.
VCs are also getting more diverse. For example, Base10 Partners is a black-led VC fund that raised over $130 million to fund seed-stage startups with between $500,000 and $5 million. Further, Arlan Hamilton has built a $36 million fund dedicated exclusively to black women founders, called Backstage Capital.
This diversity is, in part, being driven by a desire to invest in companies that reflect the founders' own experiences and backgrounds. This heterogeneity is set to increase the aperture of evaluation for startup opportunities and lead to novel value propositions being funded.
Digital natives are flocking to VC
Another driving force behind the changing face of VC is the fact that young people are digital natives. They grew up with the internet and are comfortable with digital tools and platforms. This makes them more open to new models of investing, like online VC funds.
What's more, digital natives are used to seeing startups succeed. They're familiar with the stories of companies like Facebook, Tinder and Robinhood — all of which were founded by young people. This makes them more likely to view investing in startups as a viable option.
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Finally, millennials and Gen Zers are purpose-driven investors. They're interested in making a positive impact with their money and are drawn to companies that align with their values.
This is reflected in the increasing interest in impact investing and environmental, social and governance (ESG) factors. In 2020, 33% of total U.S. assets under professional management were sustainably invested. This trend is only going to continue as more young people enter the VC landscape.
Comfort level with risk is also leading young people to invest in new areas, like cryptocurrency and blockchain. These technologies are still in their early stages, but as digital natives, young investors are more comfortable with the risks involved. They're also more likely to be interested in the potential rewards — which can be significant.
The future of investing
The face of venture capital is changing. And it's being driven by a desire for higher returns, more risk tolerance and a focus on making a positive impact. Private market investing platforms have emerged to help individual investors more effectively deploy their capital, and more new offerings will come. Gridline, for instance, is a digital wealth platform that raised $9 million to provide access to top-quartile alternative investments with lower capital minimums, fees and liquidity.
We're at the beginning of a generational shift in terms of how people invest. As Gen Z gains more buying power, expect to see an even wider array of impact and venture investment products emerge — all tailored for this new investor class.
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