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Venture capital: here’s to the future

19/09/2019

The future of Venture capital

The time frame for investment into, and exit from venture capital (VC), one of the earliest known formal stages of start-up investment, is traditionally a matter of years, measured in single digits. VC funds usually have an investment horizon of eight to ten years.

But start-up investment today should not automatically be short-term. Longevity and flexibility sit at the heart of our own philosophy and strategy. As long-term evergreen investors we are able to invest for as long as it makes sense to both parties.

Adjusting to the evolving landscape

Those in the vanguard of the changes in the venture capital world are already well aware of the evolving landscape. Their would-be competitors will inevitably at some point find themselves having to run just to stand still as investee companies increasingly recognise that they need more from potential investors than the simple provision of finance.

Venture capital will need more than sophisticated financial engineering to ensure success in the short-, medium- and long-term future. We are not a financial investor in the traditional sense of venture capital. We believe there is additional value to be created by a true partnership.

It is not always possible to translate partnerships and synergies into a profit and loss account or a balance sheet, but they form key elements of the filtering process in our own modern strategic approach to venture capital provision. Correctly targeted, synergies can be more important than an immediate financial return. They are the cornerstone of future growth and success.

A dearth of opportunities, not of money

We all have a part to play. Start-ups can still find it hard to access much-needed external capital. This is not because of a shortage of money. Rather, it is the relative scarcity of compelling new investment propositions. Most VC firms usually analyse 50 to 100 files to make an investment, as we all have our specific individual criteria. We focus on projects that have already established a degree of traction in their target marketplace.

Although the tech world might disagree, not everything that is new is an improvement, not everything that makes life inherently easier will find a mass market, and not everything that is innovative is scalable and more profitable.

Post-investment development

The prospects for post-investment development have taken on a new dimension in terms of taking investee companies forwards. We look for founders and chief executive officers who possess a long-term vision on the development of their companies. If Europe is to build an Amazon or a Google, rather than give birth to the occasional unicorn, we must look beyond traditional financial investment parameters.

And what of exits? In the current climate, initial public offerings are not a surefire option, as demonstrated by the problems that recently beset the attempts of WeWork to float. As the number of investors hoping to monetise their pipeline of start-ups grows, the IPO’s fall from must-have fashion could prove somewhat problematic. This in turn focuses the investor spotlight on the need for business models that can actually be proven to be financially rewarding and sustainable. Patience is, indeed, a virtue.

New maturity, new precision

Several centuries after the first recognised venture capitalists finance seaborne trade, overly opportunistic financing in a scattergun approach is rapidly acquiring a new maturity and new precision in the world of pulse-quickening technologies.

Against this changing backdrop, our role as a corporate venture capitalist to identify potential strategic partnerships to develop new markets and new products with the aim of building a client base that will form a global intelligent network.

Building open banking ecosystems that put the customer first can deliver clearly identifiable value. Clearly identifiable, that is, to those who know what to look for, and how and where to find it.

Here’s to the future!

"If Europe is to build an Amazon or a Google, rather than give birth to the occasional unicorn, we must look beyond traditional financial investment parameters." Didier Lallemand – Managing Director of Societe Generale Ventures

 

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