Cutting through the noise

First, some company news: Mawsonia has won a Queen’s Award for International Trade.

Our submission weighed heavily on the fantastic work the team developing Global Corporate Venturing, Global University Venturing and Global Impact Venturing has been doing over the past few years to connect innovation capital sources and drive innovation forward on the global stage.

But, ultimately, the award reflects the support, insights and talent of the global innovation community and the members of the Leadership Society and Global Innovation Venturing so thank you for the past 11 years and for building a brighter future.

The innovation ecosystem we find ourselves in arguably has its roots with Charles Babbage, a University of Cambridge mathematician, perhaps best-known as the inventor of computers. His work, however, also led to the creation of the Penny Post, where (eventually) a letter could be sent anywhere in the British Empire for one penny.

The Penny Post, therefore, predates Metcalfe’s Law, which postulates the value of a network is proportional to the square of the number of users it connects.

Joseph Schumpeter’s ideas of creative destruction had innovation at its core. Ideas rather than accumulation of capital drive long-term growth, as the Economist noted in its review of the new book, The Power of Creative Destruction by Philippe Aghion, Celine Antonin and Simon Brunel. Advances in one area lead to more ideas across multiple industries.

Bring both Metcalfe and Schumpeter’s ideas together thanks to a boom in internet connectivity and computing power along with abundant, almost limitless, capital and the potential to tackle almost any challenge beckons. This could be useful given US energy secretary Jennifer Granholm last month said fighting climate change was “our generation’s moonshot”.

Billions of people are increasingly connected through video conferencing, and mixed and virtual reality.

Artificial intelligence (see the special report for the Global AI Council) is turbocharging creativity through the development of more insights, which in turn can be used to write software code drawn from more data, sound and images.

The media sector, which we analyse this month, shows many of the patterns first in this information and communication technology revolution.

But the venture industry is also grappling with the challenges of creative destruction.

In the GCV webinar analysing the first-quarter data, Alex McCracken, managing director for corporate partnerships at SVB in the UK, said the industry was grappling with a “barbell” pattern.

Money is moving faster into deals at ever-greater amounts per round to offer a lower cost of capital to entrepreneurs scaling up. On the other end are entrepreneurs seeking more value-added investors, able to bring more than just money to support the startup.

In the middle are the traditional venture investors identified by investor Everett Randle as being in the dead zone.

Ultimately for a bank such as SVB, or any venture investor keeping track on the trends, opportunities and risks at the macro and micro stages as well as the money flowing in and out is a multifaceted issue.

Probably the clearest indication of the bubble conditions for innovation capital has been the growth of special purpose acquisition companies (Spacs) in the past year. As Girish Nadkarni, president of Total Carbon Neutrality Ventures, in the follow-up roundtable for Earth Day on April 22 said: “Five of my portfolio companies have merged with Spacs and five others are in negotiation. This has given a three to four-times return on the fund. I pray to Spac gods every day [they will favour my companies] and say thank you.”

But the gods can turn away as regulators close in on Spacs or other parts of the financial services world, such as the curtailing by authorities of China-based Alibaba and its Ant Group affiliate.

McCracken’s long list of risks, including regulation, geopolitics, inflation and interest rates, the markets and exits conditions, AI, pandemics and syndicate partners, had one over-riding concern: cyber.

Whether caused by governments, criminals or mis-step, cyber-attacks or warfare could prove the equivalent of a viral pandemic in affecting people and economies.

The past year’s outbreak of the covid-19 disease has infected millions of people and caused economies around the world to shrink. It has also accelerated the digitalisation and interconnectedness online of people and businesses.

It is a virtual world still surprisingly vulnerable at points, just as people are. Few venture portfolios were prepared for a wholesale shutdown of parts of the economy due to covid-19 despite the regular warnings and modelling for pandemics. Creative minds, however, have created economic opportunities and the interconnectedness and innovation from decades of prior research have enabled at least parts of the world to bounce back.

Being prepared for other shocks seems sensible. As Nobel Prize-winning economist Daniel Kahnemann writes in his latest co-authored book, Noise, out this month, spotting bias is just part of the battle. The other part is trying to understand how decisions can be made better and focus on the most important ideas generated out of information and that takes planning and critical analysis.