“It is true that the "capitalists" investing the most money into private enterprises recently are growth equity investors. Still, venture firms have three times more number of investment deals as growth equity firms.”
WHAT WILL THE NEXT DECADE IN VENTURE CAPITAL LOOK LIKE?
Over the last five decades, the VC industry has been motivated by a range of factors, including defense in the 1970s, PCs in the 1980s, dotcom in the 1990s, cloud in the 2000s, and mobile in the 2010s. The nature of venture capital businesses has also shifted dramatically, from smaller partnerships to multibillion-dollar enterprises.
We anticipate four trends shaping the next decade of the venture.
GROWTH
Asset growth will almost surely result in larger and more widely distributed teams inside venture companies.
Given the strength of venture capital as an asset class, we anticipate further expansion. Even if the economy slows, the last decade's performance has left limited partners with plenty of extra cash to deploy in newer, larger funds. This decade will see more assets invested in venture capital than the previous decade. The first $10 billion venture capital fund is projected within five years, followed by the first $20 billion funds by the end of the decade.
DIVERSITY
Diversity is critical to the venture industry's long-term success.
For decades, a tiny group of white men prospered by investing in companies founded mostly by other white men in a limited number of places and sectors. As the sector grows in size, it will need to become more diverse to identify a bigger set of profitable investments. The younger generation of venture capitalists is more diverse, and their investments are more diverse as well. So, we anticipate that diversity of all types — including gender, color, region, and industry — will steadily rise inside the venture business.
AI
There was a period when venture capital backed the PC industry, which placed computers on every desk. In the 1990s, the internet industry pooled the world's information, and in the 2000s and 2010s, the cloud and mobile sectors. That gave everyone access to all of the data on those devices. The next stage of the venture is likely to be driven by the application of artificial intelligence to all of our cloud and mobile apps, making them smarter and, ideally, more useful. Creating AI-powered products and services with the ability to learn and act offers enormous potential, but it also introduces new technological and ethical challenges for the venture sector to overcome.
ETHICAL INVESTING
There is already much fear about how automation and artificial intelligence will affect people, businesses, and communities. So, the venture industry will need to proceed carefully along these ethical lines. The venture has been seen as a source of significant innovation that has benefited society. However, since the companies it invests in are accused of damaging privacy and increasing inequality, financial precocity, digital addiction, and division, the industry risks becoming a cause of serious damage. That's why ethical investment is projected to become a differentiator in the next decade. The most major institutional LPs — state investment funds and endowments — will start preferring allocating assets to investors who are committed to ethical standards as well as generating money.
Everyone in venture capital now has to find out which of these four forthcoming trends they fit into and have the necessary expertise. Anyone who lacks clarity and concentration will ultimately go out of business.