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.

Green Technologies Get Boost from EU’s Venture Capital Funds

There’s good news for green technologies these days. Last year, 2016, marked the largest increase in investments in green technologies by European venture capitalists in 9 years. Venture capital funds from Europe targeting clean energy are reported to have reached $834 million last year. Green technologies of interest include everything from anaerobic digesters to rooftop solar panels. But why has there been a shift in the focus of European venture capital funds towards this industry?

Specialists in venture capital and startups, such as Henner Diekmann of Diekmann Associates, judge that this shift in interest is tied to an opening of the green energy market due to the fact that private equity is seeking the next big boom. Research shows that 2010 was marked by a large funnelling of funds towards green technologies, pioneered mostly by private investors. However, since 2014, venture capitalist funds have started to grow steadily, funding the green technology market after the private equity interest dropped off. 

Now the investments venture capitalists are making are more targeted, seeking to support niche investments that come with smaller scales and bigger risks. Mainstream investment isn’t as attracted to these offers, leaving them open to VC. Basically, venture capitalist firms are filling an investment need that has great potential, but isn’t the right one for private or mainstream investors.

Let’s take a look at some examples of what some main venture capitalist firms are working on:

Terra Firma Capital Partners

This London based company is focusing on big green technologies including wind and solar power. However, the twist is that Terra Firma is looking to markets on continents other than Europe such as Africa, Asia and Latin America. According to a senior advisor, they are no longer looking to invest in Western Europe. The trend of looking abroad is one many others are following.

Oxford Capital Partners

This venture capital firm based in Oxford is focusing its investments on batteries, solar and anaerobic digestion. Specifically, the firm is interested in solar panels that will go on rooftops. One of the unique projects the firm is working on is an anaerobic digestion plant using farm waste to make electricity. 

Octopus Investments

In addition to investing in wind and solar, Octopus is also considering batteries. A part of their interest is linked to the enhanced frequency response tender that the National Grid in the UK is using. 

Zouk Capital

Taking a different approach, this venture capital firm based in London is focusing on investing in projects that address resource efficiency. In their eyes, solar and wind power are now more mainstream. These electricity makers now rely on gaining economies of scale. With resource efficiency, the firm hopes to invest in projects that recover materials that would otherwise be wasted, and use them to create energy.

As you can see, one of the key new areas that firms are interested in is batteries. What does this have to do with renewable or green energy? Solar and wind power are great, but they tend to be relatively unstable or unpredictable. You can’t be sure you’ll get the same amount of solar or wind energy each day; it’s just not constant. So, batteries are the solution for keeping grids steady even on a second to second basis. The National Grid in the UK says that flexibility is a principal concern and need as they move towards using more renewable energy. Batteries appear to be filling this need. 

The staples of wind and solar power also continue to attract investment. It’s only natural that this is the case as by 2040, it’s estimated that wind and solar energy will account for the majority of the UK’s power generating capacity, led by wind. This suggests that the industry is going to grow, a lot. According to the predictions, both solar and wind will at least double what they currently produce.

Anaerobic digesters are another technology that venture capitalists are interested in. Food waste turned into energy is a pretty exciting prospect. In addition to turning waste into energy, using anaerobic digesters is also more economically attractive than getting rid of food waste in landfills and incinerators. 

There are many other smaller technologies and projects that venture capital is supporting, giving green technology an overall boost within the UK and abroad. In this case, venture capital is working for the future of the planet, financing the energy revolution that we desperately need. This trend towards financing green technologies could very well change many aspects of our daily lives, helping eliminate harmful energy production strategies and moving towards a renewable future.

Are you interested in venture capital or green technology? Tell us how you see venture capital shaping the future of renewable energy in the comments below.

XFactor Venture Fund

An exciting new venture capital fund has made its appearance on the start-up scene. XFactor Ventures is the name of the new fund. What’s the unique aspect of XFactor? It’s run by women and aims to support start-ups with at least one female founder.

New start-ups often seek pre-seed and seed-stage funds in order to handle the costs associated with starting a business. Experts such as Henner Diekmann of Diekmann Associates, who help companies get set-up and put corporate structures and contracts in place, are familiar with the struggles companies face when seeking funding. The venture capital industry can be cut-throat, and funding is one of the biggest challenges that new companies face. In fact, 82% of businesses that fail do so as a result of cash flow issues. In addition, 27% of businesses report that they haven’t received the funding they need. 

Women can sometimes face more difficulties than men when it comes to successfully beginning a start-up, making XFactor Ventures a welcome change of pace. Unfortunate displays of sexism in the venture capital world can also result in skewed funding. XFactor Ventures may be able to eliminate some of these hurdles for women entrepreneurs.

Difficulties Women Founders Face

Women make up just 7% of the partner positions of the tech VC world. It’s easy to imagine that it’s harder for women to pitch to male VCs than women. This is highly likely, however there is research that shows that all VCs, men and women, show bias against women founders throughout the interview process. This results in devastating consequences. Women entrepreneurs are able to get only 2% of venture funding even though they own 38% of businesses in the US.

Researchers studied interactions between venture capitalists, both male and female, and entrepreneurs, also male and female, to discover why women consistently receive less funding than men. The results are shocking. Throughout interview processes, the researchers discovered that VCs asked men about potential for gains while they questioned women about potential losses. The bias was present across the board for both male and female VCs.

In numbers, 67% of questions asked of male entrepreneurs were focused on promotion oriented ideas such as hopes, ideals and achievements. On the contrary, 66% of questions asked of women focused on prevention which includes ideas such as safety, vigilance, responsibility, and security. 

The financial repercussions are staggering. Entrepreneurs who faced prevention-based questions only raised $2.3 million dollars throughout 2017 while those who answered promotion-based questions raised an average of $16.8 million.

Women entrepreneurs can buck the trend by answering prevention oriented questions with a promotion based answer. It doesn’t completely make up the difference, but it does help. 

XFactor Venture’s Premise

XFactor Venture is a unique venture capital fund because it’s run by women who have successfully founded their own companies. This follows a trend of many male VCs who start out as entrepreneurs and then move on to investment. 

The XFactor Venture team includes the following entrepreneurs: Jessica Mah (InDinero), Aubrie Pagano (Bow and Drape), Kathryn Minshew (The Muse), Liz Whitman (Manicube), Erica Brescia (Bitnami), Danielle Morrill (Mattermark) and Ooshma Garg (Gobble). The brains behind the team are Anna Palmer of Wondermile and Fashion Project and Chip Hazard of Flybridge. Chip is the lone male partner. 

The team of expert entrepreneurs will distribute $3 million in funding to 30 companies, with the requirement that each company has one female founder. It’s expected that each investment will be for $100,000. 

There’s more to the project than making a place for women in the world of start-ups and venture capital. The fund’s premise is actually based on concrete data about diversity in business. Women founders play vital roles in business success.

Why Women Founders Are Important

There’s evidence that having women play key roles in start-ups can make them more successful. Start-ups with one female founder perform 63% better in returns than all-male start-ups. That’s a significant difference worth investing in.

XFactor Ventures’ partners have all been through the drill of finding funding, meaning that they know exactly what it feels like to be on the other side of the table. This unique model is promising and makes a first step at evening out the access male and female entrepreneurs have to vital funding. Partners of XFactor stress that they will “generate phenomenal returns,” said Hazard. Pagano also made this point, saying that gender diverse teams outperform all-male teams, meaning that seeking mixed and female teams to invest is a promising venture.

Keep your eye on this exciting new venture firm. They’re sure to produce interesting results.