How to Spot the Next Big Thing: Trends VCs Should Be Watching

hich VC is going to find the “next big thing?”

That is—literally—the billion-dollar question.

Venture capital investments are projected to reach new heights in the coming years, estimated to exceed $1 trillion annually by 2025. This highlights the need for insightful and calculated investments to achieve high returns.

While most startups won’t reach unicorn status, data suggest that nearly 75% of VC-backed startups fail to deliver a profitable return. It’s up to the VCs to develop a “nose” for identifying investments poised for massive growth.

So, what separates a unicorn from the crowd? Here, we’ll explore trends and practical tips for spotting the next big thing in venture capital.

Spotting the Right Timing in Emerging Markets

Emerging markets represent profitable and unsaturated investment opportunities for VCs seeking scalable investments. For example, the African tech market saw over $5 billion in VC funding in 2021 alone. Sectors such as fintech, e-commerce, and agritech, to name a few, have also shown accelerated adoption across emerging economies with increased internet access and mobile penetration. Venture capitalists who invested early in markets such as Africa and Latin America benefited from early positioning in regions with high growth potential. For instance, Andreessen Horowitz’s investment in the Kenyan fintech company Branch led to substantial returns when it expanded to India and Nigeria.

Targeting underserved but rising markets allows VCs to choose startups ripe for significant scalability.

Look for Solutions Targeting Digital Transformation in Traditional Sectors

Digital transformation is no longer just a catchphrase or a hypothesis that may or may not happen. Technology has reshaped the trajectory of all industries, including traditional sectors such as construction, healthcare, and logistics. Startups that disrupt these spaces with tech-driven solutions for efficiency and scalability are a goldmine.

VCs should seek founders who bring innovative technology to established, large markets that have remained stagnant but are otherwise ripe for digital transformation. Sequoia Capital, for example, backed healthcare tech startup Tempus, which capitalized on the intersection of healthcare—more specifically, cancer care—and data. Today, Tempus is valued at over $8 billion.

Spotting startups that bridge legacy sectors with digital transformation allows VCs to increase their chances of finding investments with high ROI potential.

Follow Founders with Deep Domain Expertise

Scrutinizing the founders’ backgrounds is not only a venture capital investment “golden rule” but also a proven strategy when evaluating potential unicorns. Those with domain-specific expertise tend to have a nuanced understanding of the problems they’re addressing and the pathways to solve them. This leads to stronger market positions and innovation. For instance, Elon Musk’s prior success with PayPal was critical to his vision for Tesla and SpaceX, where his knowledge and passion drove these companies to high valuations.

Venture capital firm Accel recognized the importance of founder expertise when they backed Slack, co-founded by Stewart Butterfield. Butterfield’s experience in developing consumer-facing tech from his days at Flickr played a crucial role in Slack’s success as an enterprise communication tool. Today, Slack has reshaped workplace communication with an acquisition by Salesforce valued at $27 billion.

For VCs, founders with unique industry insights often signify resilience, vision, and the ability to execute effectively—all important ingredients for high-return investments.

Evaluate Consumer-Centric Startups with Rapid User Adoption

Startups that quickly attract a large user base often have the potential to scale rapidly, especially if they can demonstrate strong retention and engagement metrics. Startups that can attract and retain a large customer base by addressing a unique problem in their category and communicating a benefit-driven unique selling proposition provide VCs with a faster route from investment to profit. For VCs, examining user growth metrics, customer lifetime value, and feedback can reveal promising consumer-centric startups. Robinhood, a commission-free stock trading and investing app, grew its user base rapidly. Its early investor, Sequoia Capital, recognized that Robinhood’s customer-first approach could change the financial industry, which ultimately paid off.

Focusing on startups with proven user acquisition and retention rates often helps VCs identify consumer-facing businesses with staying power.

Prioritize Startups with Scalable and Flexible Business Models

Scalability and flexibility are critical markers of high-return investments. Business models that can expand across markets and products give startups the foundation for sustained growth and high valuations. Look at companies like Uber and Airbnb, whose models translated seamlessly across regions and demographics, achieving scalability early on. The venture capital firm Benchmark invested in Uber when the startup was still in its early stages. Uber’s flexible, on-demand model allowed it to scale globally, making it a giant in the ride-hailing industry and achieving an over $80 billion valuation. Benchmark’s early insight into Uber’s scalability showcases the benefits of prioritizing flexible business models that don’t require extensive customization or heavy resources for expansion.

Keep an Eye on Sustainable and Impact-Driven Startups

There’s been a surge in investment focused on environmental, social, and governance (ESG) in recent years. Businesses with a strong corporate social responsibility ethos have become popular, especially among younger consumers. This does not go unnoticed among forward-looking VCs. According to PwC, ESG-focused investments will comprise 21.5% of assets under management in 2026.

An early leader in this space, Beyond Meat captured significant investment from VCs, including Kleiner Perkins, who recognized the shift toward plant-based products. The company’s success underscores the potential of impact-driven startups, as Beyond Meat’s IPO valued the company at over $1 billion.

VCs can spot future high-yield investments by prioritizing startups with sustainable missions and the potential to drive positive change in their industries and align with broader consumer trends.

Watch for AI-Powered Startups Transforming Industry Norms

Artificial intelligence is evolving at a pace few other technologies can match, and startups leveraging AI to disrupt established sectors are gaining massive traction. According to a recent report, AI has the potential to add up to $15.7 trillion to the global economy by 2030, with industries like healthcare, finance, and logistics leading the way. VCs who identify startups that leverage AI for industry-specific challenges can tap into significant ROI potential. A case in point is UiPath, an AI-powered robotic process automation company. Early VC backers like Accel saw promise in UiPath’s technology that streamlines repetitive tasks across industries, saving companies time and resources. By its IPO in 2021, UiPath reached a valuation of $35 billion.

For VCs, targeting AI-driven startups that address tangible problems within a sector can lead to high-value investments, especially as the demand for AI solutions continues to rise.

The Unicorn Quest: A Blueprint for Future-Ready VC Investments

Spotting the next unicorn in the fast-moving world of venture capital isn’t solely about capital. It’s about insight, timing, and a keen understanding of evolving trends. By leveraging emerging market potential, investing in digital transformation, prioritizing founder expertise, evaluating consumer growth, focusing on scalable models, targeting impact-driven startups, and identifying AI-powered disruptors, VCs can position themselves to find and back the next billion-dollar company.

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