As the new year dawns for those on the Gregorian calendar, it is worth looking at the trends shaping the industry. First, using the superforecaster theory to improve predictions, we can check back on the new main issues identified in this editorial last year:
“Cracks widening in the global economy is one. This will create opportunities for those with cash to pick up assets.”
Economist Robert Schiller, in an interview with the CFA Institute published this month, said: “I am struck that we have seen since 2009 an extraordinary behaviour of the US stock market. Since 2012, we see a pretty extraordinary behaviour of the housing market. Also, of course, you add the bond market, which has recently showed some bubble-like aspects as well.”
Effectively he was noting all three main markets had been in bubble territories – which the CFA said was unprecedented. Add in that Americans owe over $1.5 trillion in student loan debt, about $620bn more than the total US credit card debt, after a near-quadrupling in the past decade, and there has been plenty of liquidity. However, most main US stock markets entered bear territory – a 20% or more decline from peak prices – in the final quarter so it is fair to say the cracks have widened.
The second prediction was “finding and tying up sources of longer-term capital that can be called down is probably the biggest strategic factor of 2018. It is no surprise the smarter groups, such as Tencent and Intel, have been tapping public markets or trade sales for portfolio companies where possible.”
This certainly happened in 2018. Global venture capital exit activity had a record year, as 1,094 exits were made for a total of $165bn, according to data provider Preqin. Firms also put in place the longer-term financing through more structured fund models rather than relying on corporate balance sheets. While that is no guarantee liquidity will be available through a downturn, it offers more comfort to entrepreneurs that it could be.
Finally, this column predicted “the incredible valuations and funding for successful entrepreneurial companies has meant the venture industry is finally joining its more professional siblings in private irst near-$100bn fund raised by SoftBank and involvement in venture deals worth more than $180bn last year, according to GCV Analytics, indicates what can be achieved.
The financial techniques and sophistication of private equity and public market strategies on venture deals has been seen in the size and structuring of large rounds of at least $100m.
It is noticeable the type of recruits coming into corporate venturing last year, such as Chris Bartlett at Verizon from Morgan Stanley or Peter Tague to In-Q-Tel from Citigroup, reflect this sophistication.
Allied to this are the technology changes in corporate venturing itself. Artificial intelligence (AI), when the inputs are unbiased, is helping identify a longer tail of opportunities, and the blockchain and initial coin offerings can disrupt funding mechanisms.
Unsurprisingly, therefore, AI and blockchain seemed to be the top picks by those responding to our annual survey. For the full selection of predictions, selections as well as the annual data, see the World of Corporate Venturing 2019 supplement, published at the Global Corporate Venturing & Innovation Summit at the end of this month.
As to this year’s main new themes, it is hard to see much new beyond the turbulence continuing to roil markets and industries. Probably the second bounce of the ball from greater integration of public and private markets will be the greater use by stock market investors of borrowing corporate venturing approaches for active engagement with listed holdings (see analysis).
Attention to the ethics and culture of collaboration within venture syndicates could also come more to the fore as entrepreneurs question who their shareholders are and how to manage their disparate interests if an economic downturn does strike.
But hope remains. Technology is neither positive or negative – nor is it neutral for that matter – but as people consider more of the impact of their work beyond the risk and return equation so the potential to make the world a better place exists. That the venture industry is more diverse will hopefully reduce groupthink and encourage an enlightened approach to evidence-based questioning. The growth in the GCV Leadership Society, the record number of attendees to our events in 2018, and the development of the online GCV Connect platform to swap deals and collaborate indicate the willingness to do more together.
