The new world of venture capital

Richard Waters for Financial Times:

In short, a new private finance system has emerged from the old VC model, and a new and more diverse group of financiers has the whip hand over what has become an important engine for the future of business.

Extremely large rounds of capital raising for companies with well-proven businesses now dominate the venture landscape. Between 2016 and 2020, there were about 40 deals a month involving more than $100m, according to CB Insights. This year, that figure has jumped to more than 120 a month.

(emphasis mine)

This is an odd choice to feature on the blog, but it is essential to track the market to understand where funding is going in the technology sector. VC’s are making increasingly outrageous bets in the current bull-run, and there are signs of classical technology bubble. I have written earlier about SoftBank, as they attempt to change the dynamics around the AI “revolution”.

Here’s an interesting snippet:

How those bets will turn out is another matter. Returns still depend disproportionately on being able to find a small number of big winners. Getting a foot in the right doors is essential. That puts a small number of financiers in control, and raises serious questions about how the wealth will be spread as venture investing completes its transformation from a Silicon Valley cottage industry into one of the main engines of global finance.

(emphasis mine)

It also calls into question the traditional mode of funding medical research. Everyone wants to latch on to the generous teats of NIH as the milch cow, but also fails to appreciate the risks taken, as most ideas don’t mature into products. While committees try to minimise risk by farming it out to “established players”, it doesn’t bode well, because the same set knows and understands the chinks in the game. I am proposing this VC model of funding (besides pharma) to push through ideas that have applied domain. We could have the DARPA model of something “futuristic”, but with spin off benefits coming to society. Any model will have someone loosing out and calling it unfair, but that’s how the Darwinina evolution takes place. I am thinking of having a platform with competing teams to work on broad ideas, and then funding them to the entirety. There will be failures, but it will come with a learning experience and institutionalised learning.

VC funding should attempt to create and not make punts.

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