Predictingthe future is a notoriously difficult thing, but in many instances it is well worth the effort. However, if it'sventure capital investing you're hoping to get the jump on… be ready for somewhiplash. The sheer number of VC investments tops billions of dollars globally,money that's helping entrepreneurs and start-ups gain the financial supportthey require to make a difference.
Trying to determinethe fate of the venture capital industry is important to both insiders andbusiness leaders outside the VC community. For years, venture capital has beena major force in business and technical innovation. Investment activity by theVC community gives outsiders a glimpse of key trends in various sectors,helping executives track the developments that may eventually disruptestablished processes. For example, the flow of venture capital dollars intocomputing technology in the 1980s made up a big chunk of all venture investmentsin that decade, indicating the next wave of development was to come throughcomputing advancement.
Theventure capital industry has progressed since then. Henner Diekmann, a partner at Diekmann Associates, specialises in international trade andforeign direct investment in Southern Africa. He's worked on numerousinvestments in the region, and he has good knowledge of the workings of venturecapital. To investors such as him, the future of the VC industry is animportant aspect to consider.
It's Going Global
The VC industry looks tobecome globalised. It is slowly evolving from an industry centred aroundhappenings in Silicon Valley, with more hubs opening up around the world. Thegrowth prospects of emerging markets are helping drive this evolution.
Countriessuch as India and China are emerging as attractive hubs for venture capital. Together, they are overtakingEurope, with China being home to almost half of all unicorns (start-upcompanies valued at over one billion dollars). Even though VC activity remainshigh in the United States, other cities across the globe are starting to emergeas serious contenders, with emerging markets offering the most potential.
One result of goingglobal on VC firms will be the decentralisation of decision-making activities.More professionals will have the ability to make investment decisions. In thelong run, however, these changes are not expected to have a big impact on thehierarchical structures of VC firms.
The globalisation ofventure capital has benefits not just for the entrepreneurs, but thecommunities around them as well. Once entrepreneurs in Africa and India startbuilding global enterprises – in the mould of Alibaba – expect to see theimpact of innovation increase, producing positive results to the hostcommunities and the world at large.
More Specialization
Most venture capitalfirms will prefer to go the specialist route. Essentially, they'll seek tofocus their investments on a particular industry (or set of sectors) such aspharmaceutical, energy, or big data. This specialisation will also trickle downto the stage of investment (early or late state funding), or geographicalregion.
Increased Competition
From institutionalinvestors to angel firms and micro-VC investors, traditional venture capitalplayers have more groups to keep an eye out for. Favourable changes in fundingregulations may serve to attract new sources of interest. What increasedcompetition does is provide entrepreneurs with more leverage duringnegotiations, leading to investment deals that favour start-ups.
Competition will alsospur more VC firms to consolidate efforts to gain a greater share of capital.The projected trend is that VCs will pool efforts, resulting in fewer, morediverse firms competing for deals.
Knowledge for the Future
For many investors,the future can only get better if the present is taken care of. The journeytowards a successful start-up has its challenges and excitements, but far moreimportant as a venture capital firm is laying a foundation in the present to set up the potential forfuture gains.
This can happen in thefollowing ways:
- Encouragemore ownership. If investors are going to be part of the venture for long, theyhave to show commitment. This is true especially in hard times, when individualinvestors need to show confidence in the long-term success of the VC firm.
- Demandmore than social proof. Finding the true gems requiresbeing more diligent in learning about ideas and the startups behind them. Media coverage on the "next bigthing" can be deceptive.
- Staypatient. It's common to find VC firms concerned with finding the next unicorn,but you have to be patient and invest for the right reasons. Businesses that believe in the idea work out away to give enough to keep the start-up going, while also keeping an eye onprogress.
- Letfounders be founders. Too many venture capitalists dabble in the startup's leadership process, extendingthemselves into matters they have no business in. It leads to wasted hours, andstaff trying to please the financiers rather than focusing on building aproduct that meets customers' needs.
