Projecting the Future of Venture Capital

Predicting the future is a notoriously difficult thing, but in many instances it is well worth the effort. However, if it's venture capital investing you're hoping to get the jump on… be ready for some whiplash. The sheer number of VC investments tops billions of dollars globally, money that's helping entrepreneurs and start-ups gain the financial support they require to make a difference. 

Trying to determine the fate of the venture capital industry is important to both insiders and business leaders outside the VC community. For years, venture capital has been a major force in business and technical innovation. Investment activity by the VC community gives outsiders a glimpse of key trends in various sectors, helping executives track the developments that may eventually disrupt established processes. For example, the flow of venture capital dollars into computing technology in the 1980s made up a big chunk of all venture investments in that decade, indicating the next wave of development was to come through computing advancement. 

The venture capital industry has progressed since then. Henner Diekmann, a partner at Diekmann Associates, specialises in international trade and foreign direct investment in Southern Africa. He's worked on numerous investments in the region, and he has good knowledge of the workings of venture capital. To investors such as him, the future of the VC industry is an important aspect to consider.

It's Going Global

The VC industry looks to become globalised. It is slowly evolving from an industry centred around happenings in Silicon Valley, with more hubs opening up around the world. The growth prospects of emerging markets are helping drive this evolution.

Countries such as India and China are emerging as attractive hubs for venture capital. Together, they are overtaking Europe, with China being home to almost half of all unicorns (start-up companies valued at over one billion dollars). Even though VC activity remains high in the United States, other cities across the globe are starting to emerge as serious contenders, with emerging markets offering the most potential. 

One result of going global on VC firms will be the decentralisation of decision-making activities. More professionals will have the ability to make investment decisions. In the long run, however, these changes are not expected to have a big impact on the hierarchical structures of VC firms.

The globalisation of venture capital has benefits not just for the entrepreneurs, but the communities around them as well. Once entrepreneurs in Africa and India start building global enterprises – in the mould of Alibaba – expect to see the impact of innovation increase, producing positive results to the host communities and the world at large. 

More Specialization

Most venture capital firms will prefer to go the specialist route. Essentially, they'll seek to focus their investments on a particular industry (or set of sectors) such as pharmaceutical, energy, or big data. This specialisation will also trickle down to the stage of investment (early or late state funding), or geographical region. 

Increased Competition

From institutional investors to angel firms and micro-VC investors, traditional venture capital players have more groups to keep an eye out for. Favourable changes in funding regulations may serve to attract new sources of interest. What increased competition does is provide entrepreneurs with more leverage during negotiations, leading to investment deals that favour start-ups.

Competition will also spur more VC firms to consolidate efforts to gain a greater share of capital. The projected trend is that VCs will pool efforts, resulting in fewer, more diverse firms competing for deals. 

Knowledge for the Future

For many investors, the future can only get better if the present is taken care of. The journey towards a successful start-up has its challenges and excitements, but far more important as a venture capital firm is laying a foundation in the present to set up the potential for future gains.

This can happen in the following ways:

• Encourage more ownership. If investors are going to be part of the venture for long, they have to show commitment. This is true especially in hard times, when individual investors need to show confidence in the long-term success of the VC firm.
• Demand more than social proof. Finding the true gems requires being more diligent in learning about ideas and the startups behind them. Media coverage on the "next big thing" can be deceptive.
• Stay patient. It's common to find VC firms concerned with finding the next unicorn, but you have to be patient and invest for the right reasons. Businesses that believe in the idea work out a way to give enough to keep the start-up going, while also keeping an eye on progress.
• Let founders be founders. Too many venture capitalists dabble in the startup's leadership process, extending themselves into matters they have no business in. It leads to wasted hours, and staff trying to please the financiers rather than focusing on building a product that meets customers' needs.