The Investor’s Dilemma: Who to back?
Knowing which disruptive tech to invest in is increasingly difficult
Digital disruption has had a huge impact on the way that investors (not to mention governmental organisations and influential businesses) see disruptive agents, whether they be companies or technologies. In the past, investors chose where to spend their money by tracking the relationship between financial assets like equities and income. However, in recent years, interest rates have dropped while equity valuations have risen. This financial switch up has led investors to seek a more hands on approach that focuses on what happens within markets to predict what will make the biggest impact. Speaking on a panel of Gulf and Russian sovereign funds, GIC’s Chief Investment Officer Jeffrey Jaensubhakij echoed this strategy. He said, “For us it is very important to have an eye out on what is being disrupted.” So, it looks like there has been an increase in investments geared towards identifying and backing up-and-coming trends. . . but which ones?
Trends to watch
The size and frequency of investments in disruptive technology and companies has been growing. The most notable, of course, is the $93b Vision Fund. Currently the largest tech investment fund of all time, the Vision Fund is made up of huge global players including Softbank, Apple and Saudi Arabia. So far, the fund has backed mobile apps like Slack and OYO, ecommerce companies, biotech, AgTech, PropTech and of course AI. Fund representatives are also discussing the terms of a multibillion dollar investment in Uber.
At the beginning of the year, leading equity crowdfunding platform OurCrowd hosted The Startup Nation, a prestigious investment event in Israel. The event identified a number of trends in funding technologies that may turn out to be disruptive, and some will come as no surprise. Artificial Intelligence, for instance, remains heavily funded because of its sheer potential and breadth of capabilities. AI is fast becoming a business necessity, and any doubt of this has been quashed by the huge sums that investors are willing to spend to fuel its growth. The Vision Fund, for instance, invested $4b in AI computing company NVIDIA this summer. Likewise, Augmented Reality has become an important business tool with an endless list of applications. Startup Magic Leap received a further $500m for the development of AR glasses earlier this month. Some of the less obvious trends include DeepTech and Deep Science, two relatively novel areas which have been prioritised by a $500m fund set up by SILK Ventures. Cybersecurity is finally receiving the financial attention it needs to respond to alarming cybercrime rates, and AgTech is also becoming a priority following growing fears surrounding food shortages. Another key recipient of funding is Blockchain, the ongoing problem child of the tech industry. It looks like investors aren’t simply tracking the technologies they think will be the most successful, but also those that are necessary to building a digital future.
How will investment affect disruptive tech?
Investing in a technology or technology company undoubtedly enables development, but this means more than simply accelerating product to market times and adoption curves. Investment can be transformative, as shown by the evolution of Virtual and Augmented Reality from entertainment platforms into business tools. The new tactics used by investors, whether they be state owned, private, or even both, are bound to have implications for the advancement of disruptive tech and the wider tech community. For example, CEO of OPTrust Hugh O’Reilly has explained that the new investment climate is encouraging funds to be more open and experimental. This means that executives are looking to invest in areas that don’t traditionally receive funding like late stage ventures. These are companies which have influence, a product, and consumer interest, but need capital to take things to the next level. This, of course, encompasses a long list of disruptive companies. At the same time, this could also nudge investors towards taking a gamble on promising, early stage startups.
Ultimately, investors want to gain a return on their investments, wanting to focus on the most lucrative options. However, due to changes in established investment patterns brought about, in part, by disruptive technology, it’s difficult to know which trends to follow. Investment firms have had to adapt by working together to pool resources, carefully tracking market trends as well as the interplay between financial assets. As a result, funds are openly investing in non-traditional avenues. Not only this, but they are backing technologies that might not immediately bring in big bucks, but will be vital to future sustainability. While some technologies and companies (like AI and Uber) will continue to benefit from this, so will less obvious players. Encouraging diversity can only be a positive thing – as long as investors choose wisely.
Will the Vision Fund encourage the creation of similar co-investment groups? Do investors have a duty to fund disruptive technologies and companies that support sustainability? Are investors more likely to back early stage startups or late stage ventures? Comment below with your thoughts and opinions.