Growth shows that investors are confident, but the rise of ESG could kill off some weeds
Vice Ventures, a New York-based fund manager, recently held a $25mn first close for its inaugural fund which will invest in industries such as cannabis, gambling and sex-tech – all atypical industries for traditional venture capital investors. When Vice Ventures received backing from high-profile investors in the shape of Bradley Tusk and Marc Andreessen (co-founder of Andreessen Horowitz), then, the direction of venture capital investing swerved.
Investment in such industries has grown considerably over the past five years. Perhaps the most vociferous growth has occurred in the cannabis industry, which boomed after the drug was legalized at state level in the US and scientists published further research into its medicinal properties. The increase in average deal size is indicative of a rise in valuations and, in turn, investors’ confidence in the cannabis market: the average size of venture capital deals in the cannabis sector grew by a factor of eight from 2017 to 2018. In fact, Jefferies believes the global cannabis industry could reach $130bn in size by 20291.
Will it Last?
ESG and ethical investing have come under the microscope in recent times, with high-profile ‘Social’ indices and ETFs actively excluding companies within the weapons, gambling, alcohol and tobacco sectors. This focus seemingly juxtaposes with the cannabis industry, especially the recreational aspect, which is expected to account for the majority of the market by 20242. For a young start-up, the goal could well be to become a part of these ETFs one day. In order to level the playing field, however, the cannabis industry will likely face a high level of scrutiny on the part of the tobacco industry while discussing rules on use and marketing. The goal of becoming a ‘respectable’ blue-chip is made that much tougher, and as a result, valuations within the cannabis industry could dry up.
As part of the most recent update to Preqin Pro, customers can now search our transactional and portfolio company database using more than 50 industry verticals. Firms operating in newer or niche industries, such as cannabis, are now easily and quickly identifiable within Preqin Pro, removing the manual process to extract this information. Take a demo of Preqin Pro today to find out how our data can help you.
2Executive summary of report can be downloaded from: https://arcviewgroup.com/research/free-executive-summary/