May issue editorial by James Mawson, editor in chief
We are entering an “age of turbulence” – the theme for this month’s GCV Symposium at London’s County Hall. Whether caused by eventual economic downturn, protectionism or regulatory concerns over the impact of technology-led disruption, the headwinds for those providing innovation capital to entrepreneurs are only likely to increase.
Since the golden age for corporate venturing ended after the mid-point of this decade, sparked by increasing amounts of capital flowing in to raise valuations, there has been a degree of nervousness about the direction the industry can take.
The positive aspects of increased capital have been in terms of greater professionalism caused by competition and increased numbers of experienced managers and teams and greater strategic understanding of the ways they can help portfolio and parent companies.
The macro picture remains unsteady. If culture eats strategy then a societal backlash against disruption and the cheerleaders providing the capital and resources for change in an era of power law economics could derail some of these efforts. Regulatory efforts to limit data openness or curtail a free internet are harbingers of a broader concern about artificial intelligence and biohacking.
Whether protectionism limits capital flows around the world or affects global economic activity the result could be felt by the greatest exponents of globalisation, multinationals and their international-minded corporate venturing teams.
Protectionism makes even more likely an economic downturn that forces some portfolio companies out of business and reduces investment from corporate venturers. Naturally, the hope is that this time is different. Hope is a good thing but preparation makes sense too.
The thought-leaders in the community have already been taking steps to insulate their teams and portfolio companies. Larger rounds, whether privately or publicly funded through initial public offerings, are still increasing to give entrepreneurs more capital. IPOs can also help deliver capital back to parents to show positive return on investment.
Corporations are also hedging their open innovation bets. In-house corporate venture capital units and accelerators allied to limited partner or cornerstone positions in independent teams gives optionality to select and double down on the successful managers. The chaff will be blown off the wheat in terms of less productive strategies in a downturn.
Committed capital rather than balance sheet reliance will be prized. Disruption and turbulence brings opportunity for the prepared too. Partnerships formed during periods of turbulence are often the most valuable.
Creating the networks to be a safe house for troubled assets is useful but identifying the teams and groups that can navigate this era will be more so. A decade ago I sat with a pension fund manager who had written off venture capital just before one of its great periods for returns because of the lack of awareness around cyclicality in financial services.
The burst of venture capital – at about $1 trillion this decade – led mainly by the corporate venturing industry stepping up to its responsibility and potential, has changed the world for the better and helped integrate private and public markets and external and internal innovation strategies.
Now comes an era of consolidation and harder navigation.