VC funding figures are stark for 2023, showing a six-year low in the US and a 39% annual fall in Europe – although the latter was still higher than pre-pandemic. Much of the decline is driven by a pullback by non-conventional venture investors, such as hedge funds, private equity, and corporates, who entered the market in the last couple of years but have since been spooked by high-interest rates, plummeting valuations, and a faltering economy.

For some, it’s an existential crisis, as they reassess decisions made over the last two or three years, question their investment strategy, and face difficult questions from LPs. But, as we start a new year, VCs have an opportunity to step up, get back to basics, and remember what they do best. As the greatest sponsors and supporters of new technology, we are well-placed to overcome adversity and do our part to steer the economy to calmer waters.

Turmoil drives innovation

We’ve seen time and time again that technological advancement accelerates during times of macroeconomic uncertainty and global turmoil. Companies and startups are looking for ways to drive efficiency, address logistical, operational, and skills challenges, and create new growth opportunities when the old ways are no longer working.

We saw during the pandemic how technology can help companies adapt to changing customer behaviors, preferences, and how people want to work, and we’re seeing that now with automation, AI, e-commerce, and other online services. Global connectivity is enabling businesses to trade and operate across borders like never before and maximize pools of talent from all over the world through remote working. Digital transformation is ongoing and gaining pace across most industries, including some that are still in the early stages and will require significant investments. As a result, Gartner predicts that global IT spending will grow 8% in 2024, following a 3.5% increase last year.

And that’s before we consider the role that technology is playing in solving massive global challenges, spanning climate change, healthcare, population growth, and beyond. Climate tech investment rebounded strongly in Q3 of 2023, following a disappointing start to the year; $16.6bn was invested in Q3, the highest quarterly funding since Q4 of 2021, according to Bloomberg, highlighting the continued opportunity that exists in this space.

VC is vital to continued innovation and economic growth

Tech innovation is VC’s bread and butter, and the sector must avoid shutting up shop during the current harder market, or risk missing out on significant opportunities to build the next unicorns and drive societal change. VC is risk capital, so even during uncertain times, we should be out there taking risks and deploying capital. Of course, we should learn lessons from the last few years, but we must do what we do best and adapt by identifying startups that can address emerging and critical needs and disruptions in the market.

VCs have a longer horizon than many investors and this perspective allows them to weather short-term shocks and focus on the long-term potential of portfolio companies. They are also experts at adjusting investment strategies depending on the market, focusing on companies, products, services, or sectors that are more resilient or in higher demand during crises. We saw during the pandemic that investment in healthcare, remote work, and e-commerce technologies exploded. We are now seeing shifts towards technologies that create business efficiency savings, enable business continuity, and support long-term resilience.

Original Article on Forbes