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HSBC Funding the Future Survey: Measured optimism
- Venture capital investors are less bullish in our second survey but the majority are optimistic about activity in the next 12 months
- Both institutional and VC investors see the interest rate outlook as a potential tailwind, versus a headwind in April
- With IPO expectations on the rise and VC investors anticipating exits, we explore healthcare and tech sector trends
HSBC’s second Funding the Future Survey shows that investors have cut back expectations of increased venture capital (VC) activity in the coming three months. Yet optimism for a pick-up over a 12- month horizon remains.
Indeed, most investors now see the rate environment as a VC tailwind versus a headwind previously, as the majority of VC and listed investors now anticipate a rate cut in the US in the coming months. Expectations of initial public offerings (IPOs) are on the rise, with artificial intelligence (AI) investments being the most likely exits.
While venture capital is a significant sector in its own right, its wider influence on public markets is a key reason why we aim to give a window into the world of VC investors – their outlook, positioning, strategies, and plans. By also asking questions of investors who focus primarily on listed companies, we believe our survey offers a rich perspective on high-growth sectors.
The rate environment has pivoted from being seen as a headwind in April’s survey, to now being regarded as the biggest tailwind.
We believe the findings provide valuable insights as markets try to assess what’s next, especially as we can now see how views have shifted since our first survey in April. Among the key takeaways:
We found that 40% of VC investors expect market activity to pick up over the coming quarter, down from 52% in April.
Looking out over a 12-month horizon, 75% of respondents expect a pick-up in activity. The vast majority of investors (94%) expect fundraising conditions to improve or stay the same, reflecting the fact that lower interest rates tend to have a positive impact on fundraising trends.
Economic conditions and interest rates are seen as the biggest drivers to portfolios in the coming year. The financial sector is expected to see the strongest impact of interest rate changes.
The rate environment has pivoted from being seen as a headwind in April’s survey, to now being regarded as the biggest tailwind for the VC/IPO/PE sectors.
More VC investors expect higher IPO activity in the coming year (63% versus 52% in April). In terms of the most active IPO sector, 30% of respondents suggested it would be AI.
As many as 80% of VC investors plan to exit in the coming year, with buyouts and trade sales preferred exit avenues.
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Our report also takes a deep dive into two important sectors for VC and PE activity – tech and healthcare – and compare the views of VC/PE investors with those of respondents who invest primarily in listed companies.
What tech investors say?
For VC/PE and listed investors AI remains their favoured subsector by some margin with cloud, data centres, and semiconductors also benefitting – most likely because they are enablers of AI. Tech VC investors are increasingly focussing on early-stage investments and extending their monetisation timelines.
What healthcare investors say?
The majority of VC and listed investors are bullish on the healthcare sector currently. Biopharma is one of the places within healthcare that has attracted the most investment. Within biopharma, oncology and metabolics are the standout areas with the majority of capital flows.
The fieldwork for this second edition of HSBC’s Funding the Future Survey was carried out between 3 July and 24 July 2024 by Survation among 200 market professionals representing USD1.93 trillion of assets under management, of which USD630bn is from PE/VC investors.
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