Venture caught in a rut?
August 29, 2012 Leave a comment
I’ve been a bit heads-down for some time & it’s taken a thought-provoking manifesto from FoundersFund to force me to take a step back. Its true, there are so many behaviours that encourage “group-think”; from the casual conversation piece “what are you looking at right now” to the clustering of investment strategy around popular themes that give fund investors (false) comfort– there are unparalleled pressures on investors to pursue increasingly narrow mandates.
Equally for entrepreneurs there is the temptation to go where they know momentum is good – private sale website anyone – because they know that this is where consumer interest is currently piqued and that investors will happily open their cheque books in response to compelling month-on-month growth. I question whether micro-innovation will build the powerhouse companies of tomorrow. Whilst I appreciate Chris Anderson’s view that good ideas generally stem from existing ones, I suspect there is the danger that too many of today’s new business propositions are not innovating on enough fronts simultaneously to become the seriously valuable and distinctive businesses we aspire to build for the future.
Are we currently going through a phase of venture investing in marginal innovation, supported by incremental improvements where those increments are already proven elsewhere. This helps today’s nervous LP’s get comfortable with risking their capital in a sector with poor track record, but ultimately that sense may prove illusory. Given the difficulties managers experience in getting to critical mass, this investment strategy is a completely logical reaction but this capital is not taking real venture risks and so can’t expect its returns.
This may be where family offices and investors with non-institutional sources of capital come into their own. Ultimately outrageous returns are available to those that look beyond the obvious; who consider that to build standout businesses over 5-10 years takes a perspective that may well not be popular today. What they need, though, are entrepreneurs that dare to be bold