“This correction is generally hitting technology valuations broadly,” says Geoff Taylor, Nicola Wealth’s Associate Director, Private Equity and Venture Capital. But some companies will be better positioned to survive a poor macro backdrop than others. Many venture-backed start-ups will struggle and ultimately fail, but others will persevere and reward their backers handsomely.
Nicola’s Venture Capital Limited Partnership set out to back disruptive ideas with the potential to generate above-average investment returns, but with a primary focus on companies in verticals we feel have some positive benefit to society. While remaining opportunistic, we are currently targeting four verticals:
Fintech: Dominated by large legacy players and still inaccessible to large segments of the population, the financial services sector remains ripe for disruption. We see opportunities in technologies that increase access to and transparency of financial services, improve customer experience and are positioned to benefit from regulatory changes related to the privacy, security and portability of personal data. We focus on companies with business-to-business models that typically have more predictable revenue than consumer-facing models.
Edtech: In K-12 education, post-secondary or workplace training, people rapidly turned to digital delivery methods during the COVID-19 pandemic. Even as in-person learning resumes, we foresee a blended educational model taking hold. The key benefits of digital education include improved access to education at a lower cost and more effective teaching leading to better learning outcomes. Goldman Sachs predicts digital education spending to grow from US$6 trillion in 2020 to US$25 trillion by 2030. The pace of technological change itself is driving the need for ever more online retraining and upskilling.
Digital health: COVID-19 likewise accelerated the adoption of remote health care, already a US$175-billion industry that, driven by improving internet connectivity, technological advancement, pressure on healthcare budgets and increased patient demand for digital solutions. We see opportunities in companies that can improve care quality and the patient experience, companies with technology that can improve access to health services for people behind socioeconomic, financial or geographic barriers, and companies that aim to reduce costs in a legacy industry with tight budgets burdened by legacy technology infrastructure with poor interoperability.
Climate Tech and Renewable Energy Technology: Technology that supports and benefits from the global energy transition and has the potential to positively impact the environment has broad support from governments, investors and industry. Our interest in this vertical is broad and includes companies that are creating technologies to support/accelerate the energy transition, technology that will help the world adapt to the inevitable effects of climate change (including agtech and food tech), technologies that can help reduce greenhouse gas emissions, and technologies that can help the world assess and plan around climate risks.
We are focusing on building partnerships with other VC firms with industry expertise and differentiated deal access to increase our exposure to these target verticals while remaining opportunistic and open to good opportunities outside these core segments.
In the next blog post, we will look at the benefits of the unique structure of the Nicola Venture Capital Limited Partnership.
This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. This investment is intended for tax residents of Canada who are accredited investors. Residency restrictions apply. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. All investments contain risk and may gain or lose value. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required securities commissions.