Innovation Comes in Waves, and the Next One Could Be Tidal

• 3 min read

Are investors ready? The next wave of innovation is welling up and may swamp venture capital with money.
Are investors ready? The next wave of innovation is welling up and may swamp venture capital with money.

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Are investors ready? The next wave of innovation is welling up and may swamp venture capital with money.

The world has seen five major waves of innovation in the past 275 years, and many venture-capital experts think we might be on the cusp of a sixth. Here’s some history:

Wave 1 (1760–1830): Mechanical weaving looms and other mechanizations launched the Industrial Revolution as the world began transitioning from handmade goods to machine made.

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Wave 2 (1830 – 1900): Steam power and steel were the breakthroughs that led to railroads, steamships and skyscrapers.

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Wave 3 (1900–1970): Assembly lines and other economy-of-scale techniques, coupled with the harnessing of electricity and invention of the combustion engine, led to the mass production of automobiles, airplanes and a host of other consumer goods.

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Wave 4 (1950 -1990): The semi-conductor launched the Computer Age and a litany of advances in electronics and mass communications.

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Wave 5 (1985–2020): The internet and digitalization created the Information Age and gave us smart phones along with increasingly sophisticated software applications that gave rise to today’s gig economy.

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Many venture capitalists believe Wave 5 has crested and a sixth wave is welling up. If so, what will its hallmarks be? Will it be a green wave marked by climate-related technologies, including nuclear fusion? Will it be synthetic biology and the bioeconomy? Will it be the rise of artificial intelligence? Quantum computing? Nanotechnology?

AMG believes that a convergence of all these technologies is quite possible and could transform the world with a speed and magnitude never before seen—a tidal wave. That’s good news for investors, who in 2022 and 2023 saw the worst annualized performance for venture capital in more than a decade.

The next five years are critical. While return expectations today for public-equity markets remain modest, venture capital offers investors a chance to get in on the ground floor of the next innovation cycle and the opportunity to generate attractive returns. Consider these factors:

  • The next innovation cycle is expected to be long lasting and impact multiple sectors of the global economy.
  • AMG has access to top venture-capital managers who are positioned to gain access to and select high-quality deals to help drive chosen portfolio companies to success.
  • Focused, collaborative strategies deploying smaller fund sizes ($250 million or less) with discipline around valuations should have more attractive return prospects.
  • A backlog of IPO-ready companies exists that will potentially provide meaningful liquidity to investors, giving them the option to roll profits into new companies and maintain a steady and consistent allocation to venture.

HOW AMG CAN HELP

Not a client? Find out more about AMG’s Personal Financial Management (PFM) or to book a free consultation call 303-486-1475 or email us the best day and time to reach you.

This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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