The ultimate test of an explanation is whether it would have made the event predictable in advance, according to Nobel prize-winning economist Daniel Kahneman in his book, Thinking, Fast and Slow.
But, as he adds, no story can include the myriad events that would have caused a different outcome. And, as people continuously try to make sense of the world through causal narratives, we tend to exagerate skill over luck in a successful outcome.
However, the chance of backing a few big winners, even if only by luck, overshadows in people’s minds through the law of small numbers the research by Harvard lecturer Shikhar Ghosh, showing only 5% of venture-backed businesses hit their milestones and 75% fail to return money to investors.
And as globalisation makes the world more competitive between regions and individuals, there are increasing numbers of people, companies and governments willing to try venture investing in the hope of being lucky.
This month’s feature looks at the energy and natural resources sector and how the number of corporate venturing units has doubled just as the focus area of investment is turning towards clean-tech 2.0 rather than necessarily looking for alternative ways to produce energy.
My analysis of returns for the 30 years until the credit crunch shows the primary driver has been debt leveraging an ever-thinner slice of equity and pushing up asset values.
My hypothesis coming out of the credit crunch – what Sir Ronald Cohen, co-founder of private equity firm Apax Partners, calls the second bounce of the ball – was that if the rate of increase in debt levels slows over the next 30 years then there would be increasing attention on how to grow equity values through innovation.
Adam Lent, director of programme at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA), in a guest comment, looks at how the self-generated value transformation has unleashed a new wave of entrepreneurialism, while Global Corporate Venturing’s innovative region series takes a look at the epicentre for entrepreneurs – Silicon Valley in California.
The fact that no other region has been as successful as the valley in creating such a vibrant start-up ecosys-tem only reinforces Kahneman’s point about the perils of causal narratives, but it is still a good narrative and one that throws up potential challenges to its imperialist expansion.
But, while a rational model of judgment and decision-making might be beyond us, there are things people are doing to put themselves in a position to seize opportunities if they arise, such as being in corporate venturing to look for new ideas.
Frans Johansson in his book, The Click Moment: Seizing Opportunity in an Unpredictable World, recommends a form of personal venture capitalism by making many purposeful bets and avoiding focusing too narrowly on your goals.
Deepak Chopra, in a keynote speech at the Intel Capital Global Summit earlier this month, gave perhaps the best summary of the process behind innovation.
He described how creativity is effectively the same information in a new context with related meaning. His steps to creating something new from the invisible – that is you – is to have intention to do so, then gather the information and analyse it before incubating ideas in a playful manner where the results can be unpredictable.
This leads to insight and a feedback loop of iteration before the new product emerges. More alliteratively, Chopra summed it up as “inspiration, implementation, integration and (re)incarnation”.
Oil major Royal Dutch Shell more than a decade ago created a programme, GameChanger, supporting just such innovation processes. It has been expanding its corporate venturing programme in the past year following the sort of best practices written about in Global Corporate Venturing – see profile for more – but as one insider said, the challenge now is one of execution.
In this, Shell, as with the other corporate venturing units, will need some luck to succeed.