New Trends Defining the Venture Capital Landscape
Date: Tuesday , May 19, 2015
With its ability to build and catalyze dream companies, the venture capital industry is one of the most important funding sources for growing businesses around the world. Improved economic conditions and increased levels of liquidity, combined with higher investor confidence and a more positive exit environment, are the primary drivers supporting solid global venture capital activity. New technology has enabled funding mechanisms which are transforming the environment for very early stage start-ups, and investors are pioneering new ways to collaborate with fast growing businesses. However, start-up companies with a potential to scale need a certain amount of investment for support. Investors like to put capital into such businesses with a long-term growth perspective.
Investments are risky, but are capable of providing impressive returns when they are paired with the right opportunity. The returns to the venture capitalists depend upon the growth of the company. On the other hand, the venture industry has become more risk averse due to the ability to generate returns by making a large number of small investments into consumer oriented companies— which are probably the most capital efficient to start thanks to resources such as the cloud, open source, virtualization etc. which make launching much quicker and more cost effective. Consumer services have a direct connection with end customers who offer rapid feedback on whether investments are likely to pay off.
Venture capital is showing some remarkable new trends for investors and entrepreneurs alike. One of the most prolific transformations is in the enterprise datacenter, which is going through a massive change that was initially triggered by virtualization at the compute layer and has since rippled to the storage and the location layers. When it comes to big data, most people think that they have a big data problem when in reality they probably don’t. A big data problem doesn\'t start until you have hundreds of terabytes or a petabyte of data. Large volumes of data are predominantly unstructured which consequently has led to innovation in the technology stack. Furthermore, a lot of the innovation has actually been triggered more from a consumer space. If you look at companies like Google or Amazon or Facebook, these are companies that encountered problems with their applications so they went off and created their own solutions. This reactive development has paved the way for nimble startups to create tools and solutions for companies that may not have the resources or expertise to do it themselves.
Today, there is a prevalence of opportunity for innovative companies in both the enterprise and consumer markets. Still, we are seeing that many entrepreneurs who have come to Silicon Valley and the US from India have a harder time finding success in the consumer space. Despite having very strong core competencies surrounding technology, many of these individuals are disconnected with some of the mobile devices, applications, and hot trends that resonate with millennials since they have lacked some exposure having not grown up here. As a result, it is probably easier for the Indian entrepreneurs to build something that is more relevant to the enterprise. This has certainly created a need within the community for deeper technological understanding and passion for consumer technology, and I look forward to seeing innovative founders taking more risks to break into the space.