While the full impact on the global economic landscape can only be assessed once the virus spread has been contained and timeframes for lockdowns in countries across the world can be quantified, the European VC infrastructure, rebuilt over the last two decades after the tech crash, is facing its biggest test in history.
Does it matter? How moral is it to shift figures, calculate NAV impact and declines in returns, deplore slowdowns in fundraising and count insolvencies among startups while thousands of people continue to die in isolation from their families? While doctors, in the face of an overwhelming number of infected are called to make choices on the value of individual people’s lives and on who gets treatment and who does not?
It does! It does matter if we want to look beyond the dimension of the mere economic value at stake.
It matters if we reflect on what we, as an industry, as governments, as policy-makers, as a society, could have done differently to prevent this course of action and what we ought to do to prevent this from happening again.
Let us start with the positives: we have learnt from the past what role innovation plays for the competitiveness of our economies and how pivotal the role of venture capital is to unleash its potential. Unlike in 2001 and 2008, governments, promotional banks, policy makers, development finance initiatives, this time round, when pulling together rescue packages for the economy, do have innovative startups and technology companies and venture capital as their main funding source in their mind. That is a change and that is good!
The decisive challenge for governments, policy-makers and us as a society as a whole in responding to the crisis, however, lies in our collective ability to push our thinking and act beyond responding to what has happened and cannot be undone such as counting the casualties and “fixing” the situation at hand, and rather prepare ourselves for the world of tomorrow.
Human history holds ample proof that the perceived supremacy of humankind predominantly rests on our ability to respond to adversity. As much as humankind excels in “reacting” to threats, as careless we may seem to be when it comes to anticipating them: as long as we see “opportunities” with tangible and immediate benefits for us we are leaving our flanks uncovered.
Transposed to the Covid-19 crisis this is no different. The way we have gone about waking up to the threat of a pandemic, tracing patterns of contamination and organising quarantines is pretty much the same as in times of the plague. That was almost 700 years ago.
The way how we are dealing with the economic fallout is pretty much the same as we did in every financial crisis since the big crisis almost 100 years ago: bringing the situation back to “normal” – at any cost.
But how much thought are we spending on the “new normal” to come? How many resources are we dedicating to preventing history from repeating itself? And how aware are we of the role innovation can play in this?
In the face of corona, we are debating the trade-off between data protection and tracking the spread of a deadly virus. How about a world where decentralised ledger technology would allow us to track the virus spread without anyone else but the individual owning its personal data? Where we could warn, even confine, people in a targeted way without having to know, as humans, as regulators, as customs officers, as police force, where each individual may have been contaminated and at what time?
How about a world, where the estimated number of infections generated by artificial intelligence could be a tiny little bit more precise than a range between 600,000 and 20 million and could tell us where they are likely to be found?
How about a world where we have global trade relationships with local supply chains that can swiftly adapt the sourcing of goods to local disruptions rather than having the economic fallout amplified by global and undiversified business processes?
How about a world with a life sciences industry that is prepared for a pandemic spread rather than having favour with policy makers and access to funding sources only when they hold the only hope left to contain human tragedy and economic disaster?
As we prepare for the response to the crisis we need to be clear about our ambitions. Do we want to go back to our previous normal? Do we want to just fix this bug and start the cycle again?
Or do we want to prepare ourselves for a new normal? Are we ready to embrace technology and innovation as a catalyst for ways to effectively, quickly and, if possible, preventively tackle threats to our society in the short-, mid- and long- term?
This choice is not only one for governments and policy-makers; it is also one for entrepreneurs and their investors. The opportunity of entrepreneurship and innovation to respond to societal urgencies has never been bigger. And, in terms of returns, the ways of monetising benefits of innovation have never been more diversified, no matter which stakeholder perspective we look at it from.
After World War II, the US administration generously launched the Marshall plan to help the reconstruction of Europe’s economy. It was a $12bn envelope at that time, some $130bn in current value terms.
For the response to the current economic crisis, the five largest economies in Europe alone announced rescue plans mobilising more than 3 times that amount from public funding.
Europe’s military defence expenditure currently stands at €270bn a year; whilst the VC industry posted a historic record year of fundraising in 2018 at €11.4bn.
In the light of these orders of magnitude, how much money are we ready to invest in innovation to boost the resilience of our society against systemic threats going forward? How much value do we attribute to innovation as our potentially most powerful means of defence? Today it may be a pandemic, tomorrow it may be a natural disaster, or the tipping of our natural ecosystem.
Whatever amount we mobilise now, we can be certain that it will be cheaper than “fixing” the system once it has been taken down by the next global crisis.
First published on the EIF’s Medium account.
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