Take a new look at venture capital

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Venture capital is just hitting its stride

The venture capital model is not dead, but it has changed during the past years. In 2009, Silicon Valley Bank in the United States analyzed the “small is better” phenomenon and concluded that smaller funds are five times more likely to deliver a “venture return” compared to larger funds.

Looking forward, the venture capital ecosystem could become even more fertile by utilizing the latest converging forces:

  1. Disruption: Social/local/mobile/web 2.0 is the greatest engine for disruption and innovation
  2. Entrepreneurs: There has never been more energy for creating new businesses
  3. Angels: Seed funding by angels has bloomed and will grow further
  4. Reduced Supply of venture capital
  5. Exits are way up, and the road is paved for growth

Disruption

Mobile, social media, the cloud, and the “digital native” generation are changing everything. They are already growing faster, and will be much bigger than the PC wave. Hard goods retailing and media (movies, books, and music) have already been uprooted by this tsunami. Local commerce feels the storm rising now. Trillions of dollars of existing market value will be destroyed, and the disruptors will create even more value.

2. Entrepreneurs

Progressive youth can’t wait to explore the entrepreneurial opportunities. Today’s role models are on IPO road shows dressed in hoodies, like Mark Zukerberg who founded his social networking site while in the university. Student-entrepreneurs gained credibility and nowadays technology platform companies have dramatically lowered the hurdle for software-based businesses.

3. Angels

A rising number of wealth funds, investment companies and even sovereign wealth funds in the Middle East, provide various opportunities for growth to smal and medium sized promising companies and entrepreneurs  looking forward.

4. Reduced supply of venture capital

In contrast to the bountiful angels, the sources of venture capital are now more limited. That’s a very good thing for the early stage venture capitals that remain active.

5. More and better

The constantly evolving business and financia environment of Dubai and the UAE opens the doors for new entrants. The benefit of the changes will emerge over the coming years, as a new generation of boutique investment banks grows up to serve smaller start-up companies that are largely ignored by the “too big to fail” banks.

Timing seems to be on the side of a new golden age of venture capital. You can’t really time the venture market, because it takes too long to move in and out. But, fund investors can take confidence from the strong fundamentals noted above.

Now is the time to take a new look at venture capital.