By Kanin Asvaplungprohm (“Asva”)
Venture capital investments in the US have seen exploding growth. In 2021, the value of venture capital investments amounted to approximately $333bn. Despite the recent correction in public markets brought about by a hawkish Fed and soaring inflation, private markets remain largely unphased. In fact, asset allocators have flocked to alternative asset classes like private equity and venture capital. While the pace of capital deployment has slowed in 2022, VC firms are idly sitting on a whopping $290bn in dry powder.
The exponential growth we’ve seen in the last decade could be attributed to the tidal wave of paradigm-shifting enterprises, bringing copious success stories. From companies like Aspiration, which successfully married environmental sustainability with comprehensive banking technology, to household names like Stripe and Bolt, investment in big ideas has never been more lucrative.
As behemoth funds and institutional investors tear into every new wave of startups, hoping to identify the next decacorns, investors are seemingly intrepid in their approach. Companies in deeply specialized industries such as biotech, defense and artificial intelligence are enjoying attention from investors that may have no prior understanding of the industries, but a firm grasp on the innovative potential an enterprise holds; this can be a bane and a boon.
Because social justice, environmental consciousness, equity across demographics, and sustainability have become today’s buzz phrases, mission-driven enterprises are drawing capital from institutional investors worldwide. Today, ESG investing is estimated at over $20trillion in AUM, and that number is growing.
Notwithstanding the lucrative opportunities that exist in private markets, 2022 has been a challenging year for capital allocators. In today’s ever-changing landscape, what kind of future can we expect for venture capitalism?
The answer lies in the hands of innovators and backers.
VALUE BEYOND LIQUIDITY
Entrepreneurs who set out to raise venture funding must recognize that not all VC firms are created equal. All money is green; In a world where the most lucrative investment opportunities are oversubscribed, entrepreneurs should seek out investors that can add value beyond liquidity.
This can take many forms; the most common value-add is a firm’s network. Robust, for instance, has assembled a think tank of seasoned operators, lawyers, marketing professionals that can step in to lend support. Well-connected early-stage funds have longstanding relationships with larger institutional players. When the time comes to raise a larger round, they will bring in strategic investors.
Founders must be judicious about selecting their investors. It is important to ensure the long-term vision and incentives are aligned. One of the biggest mistakes a company can make is picking an investor on brand-name alone. The bottom line is, picking the wrong partner can get a founder fired, or worse, destroy the company.
INNOVATE, INNOVATE, INNOVATE
The biggest winners of our generation are companies that transcend their respective industries and redefine narratives. These game changers are often so novel that they seem farfetched, even contrarian at first.
Companies like Warby Parker and Dollar Shave Club redefined the way products were sold, by leveraging social media and digital advertisement to build direct consumer relationships. This gave rise to a new wave of direct-to-consumer (DTC) brands.
Amazon, Meta, Uber, Airbnb demonstrated the power of network effects; a phenomenon whereby a product or service gains additional as more people use it.
Fintech innovators like Square and Stripe disrupted traditional finance by redefining business payments. Empowering small businesses that have traditionally been underserved by incumbent card issuers. Robinhood took advantage of the widespread adoption of smartphones to democratize investing by offering zero-fee trades and fractional ownership. This minted a new generation of financially literate smartphone users.
The advent of the internet underpins all digital innovation. Without it, none of this would be remotely possible. Even the worldwide web underwent transformation – Web 1.0 was about access to information. Web 2.0, also known as the participative web, allowed users to create. This gave rise to a wave of social platforms. The latest iteration, Web 3.0 enables ownership through decentralization, blockchain technologies and token-based economics.
Innovators should now look to the applications of artificial intelligence; AI algorithms can be deployed to train machines to interpret and act on patterns. Helping machines learn real-world data through video or computer vision, natural language programming, and speech technologies. AI has the potential to boost operational efficiencies by enabling seamless human-machine interactions. By 2024, It is estimated that more than half of user touches will be AI-augmented.
The rapid development in AI and computing have enabled advances in biological science. The world of biomolecules, which includes “-omics” and molecular technologies, has evolved as the fastest-growing, cutting-edge of biological science. Symbiome discovered that inflammatory diseases endemic in the west don’t exist among indigenous hunter-gatherers. They are revolutionizing healthcare by reintroducing lost microbes.
ROBUSTNESS IS KEY
The COVID-19 pandemic was a catalyst for socioeconomic change. It wreaked havoc on businesses large and small, uncovering weaknesses within infrastructure. Supply chains were quickly disrupted, backstock of grocery stores depleted, and networks failed. Some businesses were decimated, while others flourished. The latter being those that had a firm grasp on operations and adapted their business models accordingly.
The ability to pivot is key to survival. Being a natural part of the business cycle, recessions will come and go. It is prudent to be proactively prepared. Take Spotify, who disproportionately relied on free users to listen to its advertisements, for example. Spotify saw its advertisement revenue dwindle at the onset of the pandemic. To survive, they pivoted to offer original content in the form of podcasts. By following the Netflix-model, Spotify saw 150,000 uploads within a single month.
Investors will always stress-test ideas as part of their due diligence. It’s safe to assume among an ocean of deal-flow, the one to stand out to a VC is the one with a contingency plan. Investors will always hold the “what-ifs” in their mind, but the future of venture capital is in the hands of its most ardent innovators with a clear vision and the ability to pivot in times of crisis.
About: Kanin Asvaplungprohm (‘Asva’) is the Founder and General Partner of Robust. This early-stage venture capitalist is uniquely positioned to bridge the economic and technological gap between North America and Southeast Asia. His background and career straddle both continents, having spearheaded risk management for a premier provider of Meteorological and Agricultural Tech solutions in Thailand. He then headed up a small-cap private equity firm in the US, primarily focusing on turning around distressed companies.
At Robust, by fusing traditional Asian sensibilities, global vision, and western savvy, he advises startups and growth-stage companies on the Southeast Asian regulatory landscape and tech ecosystem. With an unrelenting commitment to better humanity by championing paradigm-shifting technologies, Asva dedicates himself to the global leaders of tomorrow from the start.