Venture capitalists are notoriously a competitive lot and there is a new bar they are using to gauge status. Can you invest $50m in a round? A decade ago just raising a round size of $50m was considered impressive, but there has been a paradigm shift with the near-$100bn SoftBank Vision Fund and the scaling-up of ambitions from corporate and government investors this decade to turn innovation capital from a parochial cottage industry into a global larger industry.
To date, the Vision Fund has invested $29.7bn in 24 companies, according to SoftBank’s most recent financial report, while research firms Hurun and GlobeData estimated Tencent and its affiliates had invested upwards of $30bn between 2015 and 2017.
They could be dwarfed as governments finally turn serious attention to innovation finance. The European Commission alone plans €100bn ($120bn) for its Horizon Europe innovation budget for the seven years from 2021, according to a speech by Günther Oettinger, commissioner for budget and human resources, while, according to the Wall Street Journal last month, China is close to finalising a $47bn investment fund that would finance semiconductor research and chip startup development.
Independent VCs seem to be feeling the heat and in part to be using the metric as an encouragement for limited partners to commit to bigger funds.
Hermann Hauser, partner at Amadeus Capital Partners and backer of six unicorns – companies worth at least $1bn – in the Cambridge, UK ecosystem, in a recent Science Business webcast said the relative lack of venture investors able to invest $50m in a round in Europe was one reason the continent was “terrible” at scale-ups.
And while the “remarkable cultural shift” at universities to encourage entrepreneurship among students and faculty was “not to be underestimated”, especially alongside the growth of serial and experienced management for startups, Hauser described the relative paucity of European scale-ups as a prime problem.
There is no apparent constraint on the number of ideas or startups – Hauser in his speech said Europe now had more than the US – or capital, although there are still debates about the best mix of grants, loans and equity to offer. Werner Hoyer, president of the European Investment Bank, at the same Science Business event described how a €21bn commitment to the European Fund for Strategic Investments in 2015 was leveraging this total by crowding-in institutional investors.
Hauser applauded corporations for their approach to picking up evolutionary technology innovations from universities and use of corporate venturing to take “lots of bets” and provide a window on more revolutionary ideas, especially compared with the previous wave of corporate venturing around the millennium.
With the fundamentals of the so-called triple helix – industry, universities and government – innovation capital ecosystem in place to support the translation of idea to society, the questions become more about the speed of evolution and how to professionalise the constituent parts.
Hauser’s best practices in tech transfer in the UK, and work leading the nascent European Innovation Council, will help focus on supporting excellence and this seems the right goal.
Innovation capital, whether from corporations, impact investors, VCs, angels, universities or governments, is a service industry. What defines the best service professionals is their attention to customer needs – entrepreneurs’ desire for cash, customers, product development, hiring and an exit – and network to find and work with the best clients and peers.
As the 450 corporate and university venturers and other innovation capital experts attending the latest GCV Symposium last month found, the data showing the rise of the industry is clear. But getting ahead of the data to collaborate and syndicate to help make the world a better place by going beyond capital in their support of portfolio companies remains a challenge.
A relentless focus on excellence is the only solution to attract and retain the best investor and portfolio company talent, identify and work with the ideas and entrepreneurs that will most significantly impact the world, and shape and grapple with the antibodies trying to unfairly reject them. This rather than braggadocio of cheque sizes is the only truly valuable calling card.
In this enlightened endeavour, truth springs from argument among good friends, as Scottish philospher David Hume once said.