We analysed the 72 investments we’ve recorded under $500,000 so far in 2017 (undisclosed amounts were not included even if considered likely to be in this range) in order to get a sense of what the next ‘hot’ funded verticals could be in the Nordics. Rather than just count them up, we considered the percentage that each vertical represents of investments below $500,000 compared to the percentage they represent across all sizes of investment, so we can see which are particularly interesting to investors at the very early-stage right now.
There are a lot of variables to consider when performing an analysis of this type, for example, startups in some verticals typically require more capital than others, startups in some verticals have a higher average seed round than others and the fact that some sectors are simply more mature than others, meaning they naturally have more investments happening at a later stage. Due to these variables (and more) we are not performing this analysis to draw strong conclusions from it, more as an exercise of interest, with a view to trying to understand what verticals may see more investment and interest in the future as a consequence of their strong performance at this early stage.
Five verticals demonstrated a significant increase in the percentage of investment they made up at an earlier stage than overall, we displayed them by total amount of difference below.
Consumer SaaS and Social and Communications could be seeing an increased interest here due to the fact that they typically require less capital to get off the ground, and could be considered high risk/reward investments, perfect for early-stage investors. However, it’s equally fair to say that the consumer space has seen renewed interest in the last year or two from investors so it’s likely that this is also reflected here. Edtech, Local Services and Real Estate could all be considered relatively immature markets in the Nordics that continue to see increased investment. Real Estate in particular is an interesting case. In 2016, we tracked just one Real Estate investment in the whole of the year, whereas in May 2017, we tracked four that month alone, further proof that this is a “hot” vertical in the region right now. Whatever the reasons, all five verticals are clearly attracting substantial interest in the pre-seed space right now and should be monitored by seed and Series A investors.
There were of course some verticals that moved in the other direction and took a significantly lower share of investments below $500,000 than they do overall. A good number of these are likely due to the maturity of the vertical and the sheer number of investments they see, such as Enterprise SaaS, FinTech and Retail. DeepTech also saw less, this could perhaps go under the definition of “first investments typically need to be higher in this vertical”. Verticals that had less of an interest in the very-early stage that are a little harder to explain included HR and Recruitment, IoT and Security (although again, perhaps the same case could be made for these latter two).
What was particularly surprising is that of the 27 different verticals we analysed, only a total of 10 demonstrated more than a 1% point difference (either way), meaning that 17 verticals saw pretty much the same share of investment whether at the $500,000 and below level or overall, with investors tastes pretty much aligned across all stages.
However, as we stated above, no hard conclusions should be drawn from this analysis, however, the early-stage market is often a good place to look for future indications of interest and investment, and I would be fairly confident of all 5 verticals highlighted in this post possessing enough interesting early-stage companies to see increased and larger investment over the next 18 months or so.