The start of a new year always brings hope, especially to an innovation capital ecosystem that feeds on optimism. But with US president-elect Donald Trump selecting fellow billionaires and investment bank Goldman Sachs alumni to his team, Europe fracturing under divergent member state aims and Russian pressure, and Asia grappling with China’s crackdown under President Xi, a panglossian degree of optimism is unwarranted.
Instead, scenario planning and preparation for tougher times ahead will help sort the professional class of corporate venturers and other investors from the dilettantes that have entered the industry over the past five years golden age that ended last month (see last month’s editorial).
CVC has broadly followed the 80:20 rule, with about four-fifths of the deals being done by the top 20% or so of firms. It is to that upper quintile the industry is looking for leadership and best practices.
When AngelList bought Product Hunt last month, Michael Coren at news provider Quartz accurately said venture capital was being upended by its own technology. Quartz quoted Naval Ravikant, co-founder of AngelList: “The bigger picture is that the traditional things that only [Silicon] Valley startups have available to them are going online. Cash, customers, and talent. Those are the things companies care about.”
Ravikant is trying to combine platforms that bring entrepreneurs together with a wider group of investors and potential employees and influence how those startups’ products are recommended and bought by customers – a great business model for what is shaping up to be the first mass market age in venture capital 20 years after the dot.com bubble raised people’s consciousness to the potential of a second life online.
Smart investors have been offering the same combination of cash, customers and talent in varying proportions to their clients – the entrepreneurs – in return for access and returns to their funders. Wendell Brooks, president of Intel Capital, at last year’s Global Corporate Venturing & Innovation Summit, said his goal was to find out “what can we do for our portfolio companies, not what can they do for us?”. This required an understanding of the unique advantages and culture within the organization and its parent.
Roy Bahat, head of Bloomberg Beta, when it closed its second $75m fund in July, said: “Bloomberg was one of the original technology startups when Michael Bloomberg founded the company in 1981, and we try to carry that spirit in Bloomberg Beta. In our first fund, Bloomberg supported us in creating a different kind of venture fund. We built Bloomberg Beta to treat our founders like we treat Bloom-berg’s customers, with great care, trust, transparency and a service driven by data. The revolutionary plan for our second fund is to just keep on doing exactly what we have been doing.”
Or, as Yao Xia, executive director for Tencent Investment, a nominee for this year’s Global Corporate Venturing Rising Stars 2017 awards, put it: “Similar to other industries, CVC needs to have a clear understanding and also the good execution on its competitive advantage, and differentiate itself from other investors.
“Investment is a red ocean market, with too many investors and too much money. Although everybody is talking about post-deal management or value-added services to investee companies, the key thing to provide is still the same – money. But CVC is naturally capable of differentiation. No matter whether it is minority investment or an acquisition, CVC should be thinking from the company’s perspective, being a trusted friend of the company, and providing its resources and expertise to back the company’s growth.”
The full GCV Rising Stars 2017 list, with more of his insights, and the chance to hear Xia’s boss, Jeffrey Li, will be revealed at the sold-out GCV&I Summit in California later this month. The feedback from these GCV Rising Stars 2017 provides insights that complement the statistical analysis and qualitative feedback from GCV’s annual survey of more than 200 industry leaders – carried out in conjunction with professors from Stanford, Harvard and Chicago universities and to be published at the summit in the World of Corporate Venturing 2017.
But beyond just putting entrepreneurs first, there has to be better communication with them, other VCs and senior management for the message to come across, as well as delivering the networking and execution of best practices.
Professionalism and recognition of the industry as a service is a hallmark of these top firms. From a cottage industry of VCs following “pattern recognition” to select former colleagues, fellow university alumni and sons of friends, the newer breed of venture investor has emerged with the brand, marketing and support-beyond-money that entrepreneurs want, offered by units that can hire experienced and mixed teams.
The future, therefore, is not a golden age reaping rewards from information asymmetry and against lifestyle-business peers – it is professional.