Innovation Still Ripe for Investment

Now might be an attractive time to jump into the venture-capital pool.

First, consider the availability of capital. With rising economic uncertainty, equities have sold off and bond yields have risen. Meanwhile, liquidity from private investments has been limited resulting from a dormant market for initial public offerings (IPOs) and slow deal activity for strategic acquisitions (M&A). Many institutional portfolios, long the backbone of private capital, have become overweight illiquid assets, causing a pullback from new commitments to asset classes such as private equity and venture capital.

As capital becomes more precious, founders and operators are driven to efficiency, with decision making acutely focused on return on invested capital. With less capital competing for target companies, venture investors have time to evaluate business opportunities, spending time on diligence to understand the business opportunities and risks. While seeking to be collaborative in building the business, in these periods, venture investors can establish favorable terms, allowing for attractive outcomes when the venture achieves success

Second, remember that innovation is born out of economic malaise. Despite the current economic uncertainty and market turmoil, the U.S. dollar serves as the reserve currency of the world, U.S. Treasuries remain the standard for a risk-free investment, and Silicon Valley continues to be the hub of global innovation.

Most experts expect that to continue, including venture firm Andreessen Horowitz, which sees American innovators right now re-imagining manufacturing, addressing supply chain inefficiencies, improving energy security and reliability, and modernizing defense and security systems. These are critical factors for the coming future with artificial intelligence impacting multiple industries, expanding energy demand but opening potential new security threats. Solving these challenges requires ongoing leadership in innovation.

Successful innovators push boundaries by embracing challenges and solving global problems. In doing so, they expand and create new markets. Over the long term, investing in innovation can drive returns for investors.