Institute of Entrepreneurship and Private Capital at London Business School
Over 200 attendees gathered at London Business School, where we learned from some of the most influential industry experts and academic thought-leaders, who discussed trending topics in Private Equity and Venture Capital. These conversations covered investment trends, technological developments and forecasting how the turbulent market will affect companies in 2022 and beyond.
With speakers including Jonathan Lavine, at Bain Capital, Nowi Kallen at Salesforce Ventures, Rob Moffat at Balderton Capital, Rashmi Madan at Blackstone, LBS alumni-turned entrepreneur Tushar Ahluwalia, as well as Ramana Nanda from Imperial Business School and Ilya A Strebulaev from Stanford Graduate School of Business, it was fascinating to listen in and understand different perspectives from across private markets.
Here are just some of the insights we heard on the first day:
As the private equity industry grows, it makes sense that regulators will start to scrutinise the impact of the sector to ensure free, fair and transparent markets. Take for instance ESG. As different firms are implementing ESG in their own ways, a regulated framework would ensure consistency across the industry so everyone is reporting and analysing their ESG efforts in the same way.
There was agreement in the room that inflation is going to affect valuations across the markets, but private equity and venture capital investors differ on where it will land.
We’re seeing from our private equity colleagues that due to the different valuation methodologies they employ, they are less concerned about the impact than venture capital firms. Both investor groups think it will take several quarters to settle.
On the VC side, investors are starting to see how the impact of inflation will directly affect businesses with large balance sheets such as 10-minute delivery startups, insurtechs and hardware companies, whilst a growing number of businesses have found themselves unable to raise. That being said, great companies should still be able to raise in this environment and grow for many years.
Corporate venture has been growing in recent years with the biggest funds including the likes of Google Ventures, Salesforce Ventures and Intel Capital. But for companies looking to set up their own CVC fund, or startups looking for backing, the best partnerships are built on solid foundations where each side respects one another and isn’t using it as an acquisition funnel. CVCs need to make sure they are startup and founder-friendly or it could come to hurt their investments when it comes to an exit with future acquirers increasingly wary of non “clean” terms.
Though there has been lots of soul searching in the VC community due to high-profile failures such as WeWork and Theranos in the US, not to mention Greensill Capital in the UK, VC is still vital when it comes to funding transformational technologies. Less than 0.5% of companies in the US have VC funding but half of US IPOs have come from VC-backed companies. Often these businesses are more highly valued and more R&D intensive than non-VC startups.
That being said, there is a lot of work to be done to broaden the reach of VC. Of the 50 largest VC firms in the US, 92% of the partners with at least one board seat are male, 28% have an MBA from Harvard or Stanford and 69% are based in the Bay Area. It shows how VC networks are very concentrated in terms of geographies and profile, consequently affecting who gets funding and who doesn’t.
In 2006, cloud technology was a major enabler for the software startup boom with companies able to test and deploy ideas on the cloud instead of investing in expensive hardware. Now AI and simulation technologies are integral to the development of deep tech, enabling entrepreneurs to simulate hypotheses that could be transformative in the long run. Used in this way, big tech will revolutionise biotech, material sciences and even healthcare and will be an interesting space for investors to explore over the next few years.
Anyone concerned about what the next few months will look like, should try and stay calm and focus on the long-term like LPs. Pension funds, endowments and family offices still have a high appetite for investing in venture and private equity. In particular, more pension funds in the UK are starting to invest in venture capital funds, so the benefits of that long-term investment will trickle down to wider consumers. Remember, markets are cyclical so hold on to your investments for a few years before making drastic decisions.
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