During the last year there has been considerable discussion regarding the current state of the venture capital industry: Are we in a bubble? Did that bubble pop? Why has there been a dearth of major technology company IPOs? How much higher can valuations skyrocket, yet why does it seem increasingly difficult for earlier stage startups to raise their Series A and B rounds?
All good questions. But I am a “realistic optimist” and a technologist, and I see the advancing pace of technology development as a positive signal for the market. I believe we are entering one of history’s best markets for investing in emerging technologies, and that astute investors will focus on the smartest and most innovative technology leaders. So, I prefer to follow the technology, not the market prognosticators.
What history can teach us
I also agree that market history should not be ignored; we have learned quite a few lessons from the 2000 technology crash and the 2008 economic crises. These events have helped shape our mindsets and paradigms, and the best investors have applied these lessons well. We’ve become more informed, more sophisticated, more discerning, more capable of assessing risks and more insightful in identifying the next major technology. We’ve collectively learned and disseminated more about technology and entrepreneurship in the last seven years than has ever occurred in the history of modern technology.
And it’s been a wild ride: We’ve witnessed a variety of new technologies and new industries and more than 168 new unicorns. It now costs less than $100,000 to start a company that could be worth $1 billion dollars in five years. The leading college majors are computer science and entrepreneurship, and it seems like everyone wants to start or join a venture-backed company.
We’ve also gotten smarter on granular company-building details: the logistics of manufacturing; selling and delivering a product directly to an end consumer; the measurement and monetization of mobile viral growth; the impact of each percent of churn for an enterprise SaaS product at $100,000 or $1 million MRR; the cost of customer acquisition versus the lifetime value of the customer; and the incorporation of new software and data analytics capabilities into business processes. Importantly, we have learned how to recognize the lifecycle of these companies and how to extract value for our investment as we seek to provide returns to our limited partners.
While there’s always going to be uncertainty in venture capital investing, my view is that we are entering one of the most exciting times in history to be investing in and building technology-enabled companies.
New companies are being created to exploit new technologies to become world leaders: Look for key developments and new applications in technologies relating to artificial intelligence, machine learning, UAVs (drones), cybersecurity, crowdsourcing, data analytics and visualization, computational imaging and recognition, virtual reality and software-defined processes.
VC funds are on track to bring in another $30 billion in 2016 — more money than at any other time.
These aren’t safe bets. These are highly risky investments — but with the potential for seismic societal shifts, let alone massive returns. This is proper venture capital.
Yet many investors new to venture capital remain nervous, and we still must address the questions that continue to resonate in the technology media: Will the high valuations hold and properly return capital down through all investors on the cap table? Will early-stage companies be able to raise capital for product development, product-market fit and pre- and early-revenue phases? Will technology deliver on its multitude of promises? Which big unicorn investments will flame out and which seemingly genius technologies will go bust?
The venture capital industry itself is more bullish. VC funds are on track to bring in another $30 billion in 2016 — more money than at any other time; we’re poised to push the future forward.
New companies will use the technologies mentioned above to build safe autonomous vehicles, advance drug development and surgical robots, improve efficiencies of employees in the workplace, create a space exploration industry, increase the productive use of massive stores of data for decision science, enhance manufacturing with 3D printing, lower the cost of communications, develop new materials and composites and expand the universe and use of connected hardware both in the smart home and in our communities.
As we push the boundaries of technology and science, increase the connections between venture capital and corporate development, apply new knowledge of best practices in company building and develop the next generation of technology leaders and visionaries, the simple fact is there will be huge value and wealth creation.
The realistic side of me forces a disciplined regimen of hard work, comprehensive due diligence and relentless oversight; the optimistic side of me is just super excited to be a part of our industry.