May 2020 issue editorial by James Mawson, editor in chief, Global Corporate Venturing
Congratulations to central banks and governments around the world for their liquidity and spending to soften the effects of the coronavirus outbreak.
The overall stimulus bill stood at $14 trillion, according to the International Monetary Fund by late April. And, while the global economy will crash in the first half of the year, there remains hope for the second half and beyond.
But having ripped up just about every tenet for fiscal and monetary measures – junk bond buying, loans to loss-making companies, state aid for practically everyone – what is left of capitalism and globalisation?
Governments and societies are heading back towards what people value but particularly the big drivers for change: energy, healthcare, communication, food and clean water, and security.
Bits whizzing around the digital sphere are important to create all the things we value through the internet and information technology revolution but while we remain primarily physical then the task of shifting or building atoms is at least equally important.
In this sense, the 17 sustainable development goals from the United Nations are helpful signals for what matters to most people and what we can build.
As Marc Andreessen, founder of VC firm Andreessen Horowitz, in his blog last month said: “I think building is how we reboot the American dream.
“The things we build in huge quantities, like computers and TVs, drop rapidly in price. The things we do not, like housing, schools, and hospitals, skyrocket in price. What is the American dream? The opportunity to have a home of your own, and a family you can provide for. We need to break the rapidly escalating price curves for housing, education, and healthcare, to make sure that every American can realise the dream, and the only way to do that is to build.”
But just as not all wars have to be kinetic to be successful and to subdue the enemy without fighting is a supreme art – hence misinformation spun into target populations to weaken resolve and trust – so the wisdom of crowds is one of democracy’s strongest points. People can signal their interests and competitive industries can allocate resources appropriately to meet the needs.
Clouding these signals carries risks even if – with the best of intentions – governments try to stem market failures on important issues, such as meeting sustainable development goals, or sudden shocks, such as the coronavirus.
As Nicholas Eberstadt, senior adviser at The National Bureau of Asian Research, writes in an essay for its New Normal series: “The creative destruction the crisis will unleash will eventually offer immense opportunities for innovation and dynamic improvements in productivity, so long as resources from inefficient or bankrupt undertakings are reallocated to more promising new purposes.
“To give just one example, the returns on remote communications will likely be high, incentivising impressive breakthroughs. Post-pandemic economies around the world will need all the productivity surges they can squeeze out of technological and organisational innovation, too – for they will almost certainly be saddled with a far higher burden of public debt than today.”
If you compare the overall VC ecosystem using PitchBook data and corporate venturing activity through GCV Analytics, last year CVCs engaged in more than 10% of the total of deals but more than half – $134bn out of $250bn – by value. Effectively, almost all the large rounds that create global champions involve CVCs driven by the axis of US and China.
It is clear from the past decade that for an ecosystem to scale up and create superstar companies that in turn create jobs and taxes, it must involve CVCs (whether this is correlation or causation can be unpicked in the literature).
Supporting corporations to continue CVC and open innovation encourages the flow of information and supply-demand between suppliers and customers. This also feeds into M&A down the track. In this all-encompassing shock, corporations become almost as important as VCs as they can drive startup survival, not just with equity, but with cash – by being customers, helping information flows and product development for IP – and then into universities and research.
The knowledge base is more important than the startup, in some ways; and innovative corporations can avoid letting governments deciding too much of what should be built, by whom and when, or leaving everything to laissez-faire capitalism.