Grow with Tech: Can Traditional Venture Capitalists Survive?
The answer is yes but I believe there will be change. Venture Capital funding is very much needed and will always be a popular route to accelerate and scale. However, change is inevitable, let’s look at where that change might happen...
The answer is yes but I believe there will be change. Venture Capital funding is very much needed and will always be a popular route to accelerate and scale. However, change is inevitable, let’s look at where that change might happen:
Many year ago, sales organisations worked out that having a vertical proposition lead to better sales conversions. Understanding the vertical you were selling into resonated with clients and lead to more meaningful discussions which resulted in more sales.
We see many VCs already operating in distinct areas such as Tech, Life Science etc. I predict we will see a greater focus on specialisation. This brings benefit to the company seeking funding, the VC truly does understand the industry they are in! As well as offering financial support, access to their ecosystem is a huge value add. For the VC it reduces risk and helps with due diligence.
Wider Geographical Spread
Traditionally as VCs got larger they expanded into other countries. International expansion would enable the VC to have a spread of deals across the globe. Having access to new diverse deal flow and investing capital into new markets makes perfect sense. However, I now see young VCs accelerating that process and finding international deal flow but without having a full time physical presence in that county.
More VCs are using technology like Cisco Telepresence to do video meetings with potential companies and are more than happy to jump on a plane to conduct the due diligence for a potential hot deal. Data has really helped and in the UK we have a great company called Beauhurst. It’s like Crunchbase/PitchBook but better as the data is more UK focused and gives you the information needed to source and execute deals. I’m aware of companies similar to Beauhurst providing the same service in other countries too. Leveraging new technology platforms enables you to enter and analyse new geographical market quicker that ever before.
Data is changing the world and we use a lot of Predictive Analytics to help us with due diligence. It’s one thing for a potential investment to show us their Target Addressable Market but we all know a TAM is quite useless. Predictive Analytics helps us understand from a B2B point of view how many clients are engaging and showing positive digital body language with an intent to buy for a particular service or product. This helps us get more of an accurate picture on the size and velocity of the market.
We also leverage social listening, this is great for B2B and B2C investments – we use social media listening tools to pick up on public conversations and analyse the trends. To assess the market in the past we have tested new ideas/products/services on social media to get quick and honest feedback from users. A few years ago, it would have taken considerable effort to go and poll the market and obtain feedback. Social media listening now provides real time data at scale.
I believe VCs have been slow to use new data sets to influence investment decisions. I see this will change over the next three years and it will be normal for a VC to employ data scientists.
Investment platforms are not my preferred co-investment partners, but I am becoming more open to the idea. In the past I have seen negative press about VCs (sometimes coming from the investment platforms) on why VCs are old money and the benefits of funding via a platform. I have seen several really good companies in the UK choose an investment platform over a VC for scale-up funding, I see this as a trend that will continue as more options are open to entrepreneurs.
Investment platforms can only get you so far, there will always be a need for VC money and now I’m not so fussed if I have an investment platform on the cap table or if they are making up part of the round. The quality of companies on these platforms are increasing all the time.
How to Find the Next Unicorn
Data is helping us make informed decisions every day. Could VCs be more data driven in deal origination and market analysis? Yes of course but remember we use so much data in our day to day there must be a good reason to bring in new datasets. Would I ever just use data to make decisions? No of course not. In a world overflowing with data and content we can become blind to what is really important, that is people.
It’s amazing people that make great companies, can LinkedIn find you the next unicorn entrepreneur? No, it’s through relationships meeting people and being human. The best investments will be made by those of us that get and understand people, emotional intelligence is what VCs should use more of to find and win great deals. Technology will give us more tools and bring about positive change but please never forget it’s all about people.
Alex Blakeway - Alex is a Managing Partner of Venezia Capital and sits on several boards as a Non-Exec director and is a VC advisor to the European Union. Alex has 20 years of experience in the technology market growing global business units for Siemens, Cisco, Verizon and Oracle. More articles about startups, business and new tech trends you'll find in Grow with Tech Magazine. You can download it here.
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