While generative AI companies are on track to potentially exceed last year’s record of £17.6 billion, many venture capitalists are approaching the AI sector with caution due to looming legal and regulatory challenges.

In light of this cautious climate, investors may benefit from diversifying their portfolios by exploring high-growth sectors beyond AI as we head into Q4. With this in mind, Mark-Bower Easton, Head of Distribution at venture capital group Oxford Capital, has shared the industries that investors should consider outside of AI in Q4 and into 2025.

1. ClimateTech

Investments in renewable energy, sustainable urban planning, and green transportation are surging, with global investment in green infrastructure expected to reach £1.5 trillion by 2030. This sector benefits from strong regulatory backing and public demand for eco-friendly innovations, making it an attractive investment opportunity.

Simultaneously, climate-focused startups are driving innovation in energy and clean technology, accounting for 29% of all VC investments in the UK in 2023, totalling £4.6 billion. With a growing emphasis on decarbonisation and increasing regulatory support for green technologies, both green infrastructure and climate tech present significant market opportunities for investors seeking high returns.

2. Biotech & Healthtech

Advances in biotechnology, digital health, and medical devices are unlocking new opportunities for investment in life sciences and healthcare. The UK health tech sector attracted approximately £5.1 billion in investments in 2023, reflecting a significant growth trajectory fuelled by advancements in digital health and medical devices.

Unlike AI, the biotech and healthtech sectors are benefiting from strong governmental support and an ageing global population, which ensures a sustained demand for healthcare solutions, making the sector a more stable and promising investment option.

3. FinTech

Financial technology continues to evolve, with Blockchain, decentralised finance (DeFi), and payment systems paving the way for substantial returns. The UK fintech sector hit £5.5 billion in H1 2024 – almost triple the amount during H1 2023.  This surge not only highlights the increasing adoption of fintech solutions but also the sector's resilience and potential for continued expansion in a rapidly changing financial landscape.

Compared to AI, fintech offers more immediate commercial applications and scalability, driven by the global shift toward digital payments and decentralised financial systems. This positions fintech as a dynamic and potentially more stable investment option, with clear pathways to near-term returns.

4. Cybersecurity

With cyber threats increasing, the global cybersecurity market is expected to grow to £199.6 billion by 2027. The sector is seeing heavy investments in technologies to protect data and infrastructure against an expanding range of threats.

With the rise in digital transformation and increasingly sophisticated cyber threats, the demand for cutting-edge security solutions is accelerating. This makes cybersecurity a particularly attractive sector for investors, as its critical importance across all industries ensures steady growth and resilience, even during economic downturns.

Easton highlights the importance of diversifying your portfolio outside of AI: “With substantial investments pouring into sectors like climate tech, biotech, and fintech, these industries promise strong returns while aligning with societal goals. Diversifying your portfolio outside of AI can help you tap into these emerging opportunities.”

To capitalise on these high-growth sectors, investors should consider these key strategies:

1. Conduct market research: understand market dynamics and identify lucrative niches using industry reports and data analytics to guide your investments
2. Align with trends: invest in companies adapting to sustainability and technological advancements, as they are likely to outperform in the evolving market
3. Seek strategic partnerships: collaborate with established players in these sectors to leverage their expertise and resources, easing market entry and reducing risks
4. Invest in innovation: dedicate capital to support startups driving innovation that addresses industry challenges, positioning your portfolio for high returns
5. Monitor regulatory changes: stay informed about legal developments impacting these sectors, allowing you to adapt your strategy and seize new opportunities