By Kevin Monserrat, Founder of Consilience Ventures
For any entrepreneur being the next big disruptor that can grow a company from zero to a billion requires more than just a bright idea and capital.
Venture capital is a tough business. LPs struggle to get paid in excess returns for the risk, fees and illiquidity they take on for investing in venture capital. Entrepreneurs struggle to scale and grow their companies and position for great exits and VCs struggle to generate the returns they promise, and only a very few manage to deliver.
Start-up are exposed to wider economic risks and are inherently riskier because of their often-untested business models which means no safety net exists – they live and die on investment returns.
Research conducted by Harvard Business School says three out of four start-ups will fail, never to return any cash to investors. Although, were you to define failure as not delivering on the projected ROI, then 95% of VC- backed start-ups are, in fact, failures. Yet VC firms continue to be portrayed as the pioneering enablers of enterprising tech companies heralding in ground-breaking change.
Chamath Palihapitiya, the outspoken Silicon Valley tech investor, called the start-up economy a charade saying we are in the “middle of an enormous multivariate kind of Ponzi scheme” where valuation” (driven by inflated VC investments) became the barometer for success in the start-up world.Sadly, he is right.
In theory, venture capitalists should provide the following: Cash (to facilitate faster growth); Validation (to attract talent and customers, get press) and Guidance (advice, connections, resources).
Looking at today’s Venture Capital landscape it becomes quickly apparent that VC funds, lack diversity, meritocracy, balanced risk structures and transparency. The traditional VC model is ingrained with key faults which are not only toxic to start-ups but stifle real growth.
Firstly, start-ups, investors and experts’ interests and agendas are not aligned. Today’s start-ups are fixated on fundraising, desire a high valuation and have little incentive to share prominent business concerns or pain points with their backers. The investors meanwhile naturally seek reduced risk and lower valuations, whilst the experts find themselves working long hours, with low pay and high risk. This rift between funding and goals means start-ups are experiencing an unsustainable misalignment of business priorities and scientific realities.
Secondly, the process to raise capital is a massive distraction for founders, who can spend up to 60% of their time on future funding rounds and face unwanted “strings attached” from VC firms. This disables entrepreneurs from focusing on core business activities which could lead to strategic growth.
Thirdly, the current model continues to value returns over the value companies offer society. Investment will find itself into a profitable fintech company before a bio-tech company that can save lives; VC is blindly focussed on finding the next Airbnb or Uber, not sustainably investing.
Lastly, a mentorship relationship in a traditional VC is either non-existent or limited with first-time entrepreneurs unable to access to the network of mentors and investors. This takes them longer to commercialise their ideas.
This current VC model tends to follow a “spray and pray” approach in the hope of finding the next unicorn which is unsustainable. An alternative community and technology-based approach is needed to transform the VC process for investors and start-ups alike.
A focus on identifying and placing strategic, informed bets on start-ups with foreseeable growth potential that can be nurtured into robust, financially dependable businesses should be at the heart of a VC model.
A change of mindset is also essential for both investors and founders to distinguish sound business cases from just ideas and soundbites.
Start-ups need more than just investment; they need direct access to knowledge, networks and operational expertise. This is often what investment is ultimately spent on. Our model at Consilience Ventures, for example, offers a one-stop-shop ecosystem, which provides a community of carefully selected investors and experts that are incentivised to help grow each company and provided embedded operational support. Within the ecosystem we use tokens held on a blockchain platform to track ownership. These tokens are like digital shares in a company but can also be used as cash or to pay experts. This creates the opportunity for liquidity between the hundreds of investors and start-ups in the eco-system.
When a company in the eco-system is bought or IPOs, the proceeds are shared by everyone in the community, according to how many tokens they own. The tokens are unique concept because they are both a currency and a share that pays you dividends. With capital pooled into every start-up in the ecosystem, investment is less risky and more distributed. It incentivises founders to come forward with their pain points, as the community is not under the same pressure from investors to grow at all costs and doesn’t eat into the early profits the start-ups need to grow. New models like this can help tackle the faults with the VC model and most importantly, give start-ups an honest chance of sustainable growth.
The VC industry is starting to undergo a period of intense and far-reaching change. General principles around fund size and investment cycles are being challenged, lines surrounding investment stages are becoming blurred and firms themselves are looking to innovate practices.
The VC industry can get back on track if it evolves and moves away from being transactional passengers to mutual trusted partners. The successful venture funds of the future will be those which divideand minimise the risks, maximise and share the rewards and be more data driven; build better capabilities and focus on adding value and not just injecting money into it. Capital may be the lifeblood of all businesses but without a pathway to sustainable growth, its wasted.
Kevin Monserrat is the Founder of Consilience Ventures, a disruptive new collaborative community connecting capital, growth companies and business expertise.
Foxconn chairman says expects “limited impact” from chip shortage on clients
TAIPEI (Reuters) – The chairman of Apple Inc supplier Foxconn said on Saturday he expects his company and its clients will face only “limited impact” from a chip shortage that has rattled the global automotive and semiconductor industries.
“Since most of the customers we serve are large customers, they all have proper precautionary planning,” said Liu Young-way, chairman of the manufacturing conglomerate formally known as Hon Hai Precision Industry Co Ltd
“Therefore, the impact on these large customers is there, but limited,” he told reporters.
Liu said he expected the company to do well in the first half of 2021, “especially as the pandemic is easing and demand is still being sustained.”
The global spread of COVID-19 has increased demand for laptops, gaming consoles, and other electronics. This caused chip manufacturers to reallocate capacity away from the automotive sector, which was expecting a steep downturn.
Now, car manufacturers such as Volkswagen AG, General Motors Co and Ford Motor Co have cut output as chip capacity has shrunk.
Counterpoint Research says the shortage has extended to the smartphone sector, with application processors, display driver chips, and power management chips all facing a crunch.
However, the research firm predicts Apple will face a minimal impact, due to its large size and its suppliers’ tendency to prioritise it. Apple is Foxconn’s largest customer.
Foxconn is looking at other areas for growth, including in electric vehicles (EVs), and Liu said their EV development platform MIH now had 736 partner companies participating.
He expected it would have two or three models to show by the fourth quarter, though did not expect EVs to make an obvious contribution to company earnings until 2023.
Liu also said the company was still looking for semiconductor fab purchase opportunities in Southeast Asia after not winning a bid to take over a stake in Malaysia-based 8-inch foundry house Silterra.
(Reporting by Ben Blanchard and Jeanny Kao; Writing by Josh Horwitz; Editing by William Mallard and Ana Nicolaci da Costa)
EU seeks alliance with U.S. on climate change, tech rules
By Sabine Siebold and Kate Abnett
BERLIN (Reuters) – Europe and the United States should join forces in the fight against climate change and agree on a new framework for the digital market, limiting the power of big tech companies, European Union chief executive Ursula von der Leyen said.
“I am sure: A shared transatlantic commitment to a net-zero emissions pathway by 2050 would make climate neutrality a new global benchmark,” the president of the European Commission said in a speech at the virtual Munich Security Conference on Friday.
“Together, we could create a digital economy rulebook that is valid worldwide: a set of rules based on our values, human rights and pluralism, inclusion and the protection of privacy.”
The EU has pledged to cut its net greenhouse gas emissions to zero by 2050, while President Joe Biden has committed the United States to become a “net zero economy” by 2050.
Scientists say the world must reach net zero emissions by 2050 to limit global temperature increases to 1.5 degrees above pre-industrial times and avert the most catastrophic impacts of climate change.
The hope is that a transatlantic alliance could help persuade large emitters who have yet to commit to this timeline – including China, which is aiming for carbon neutrality by 2060, and India.
“The United States is our natural partner for global leadership on climate change,” von der Leyen said.
She called the Jan. 6 storming of the U.S. Capitol a turning point for the discussion on the impact social media has on democracies.
“Of course, imposing democratic limits on the uncontrolled power of big tech companies alone will not stop political violence,” von der Leyen said. “But it is an important step.”
She was referring to a draft set of rules unveiled in December which aims to rein in tech companies that control troves of data and online platforms relied on by thousands of companies and millions of Europeans for work and social interactions.
They show the European Commission’s frustration with its antitrust cases against the tech giants, notably Alphabet Inc’s Google, which critics say have not addressed the problem.
But they also risk inflaming tensions with Washington, already irked by Brussels’ attempts to tax U.S. tech firms more.
Von der Leyen said Facebook’s decision on a news blackout on Thursday in response to a forthcoming Australian law requiring it and Google to share revenue from news underscored the importance of a global approach to dealing with tech giants.
(Additional reporting by Foo Yun Chee; editing by Robin Emmott and Nick Macfie; editing by Jonathan Oatis)
Packaged food giants push direct online sales to gauge consumer tastes
By Siddharth Cavale and Nivedita Balu
(Reuters) – Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing sales of their products to consumers directly via their own online channels, in a quest to gather more data about shoppers’ purchasing habits.
Velveeta-cheese maker Kraft Heinz saw its e-commerce sales double in 2020, now representing more than 5% of its global sales, Chief Executive Miguel Patricio said at the virtual Consumer Analyst Group of New York (CAGNY) conference this week.
The company sells Heinz baked beans and tomato soup by subscription or in bundles directly to consumers on a “Heinz To Home” website in the United Kingdom, Australia and Europe.
Sales on the site are “giving us valuable insights into consumer behavior, enabling us to quickly test and learn from innovations,” Kraft’s head of international business, Rafael de Oliveira, said at the conference.
Kraft would continue to use the site as a channel to generate strong sales in developed markets, he said.
The company also counts sales of its products through marketplaces such as on Amazon.com and Walmart.com as part of its e-commerce sales.
U.S. shoppers spent on average $1,271 buying groceries online last year, 45% more than they did in 2019 as the pandemic spurred shopping online, according to market research firm Earnest Research. In contrast, the average dollars spent in stores rose only about 7% to $3,849.
PepsiCo sells products including Doritos, Quaker oats and Gatorade directly to consumers through two websites, pantryshop.com and snacks.com, both launched in 2020.
Chief Financial Officer Hugh Johnston said that more than 45% of the company’s capital investments over the next few years would be dedicated toward manufacturing capacity, automation, and a “ramping up of investments in our e-commerce channel.”
As major online retailers including Amazon.com and Walmart.com continue to gather valuable data on shoppers, many packaged food manufacturers are keen to gather their own data on shoppers, too.
“COVID (has) simply accelerated our digital growth and has provided us with yet another source of data and insight,” Monica McGurk, chief growth officer at breakfast cereal maker Kellogg Co., told the conference.
Kellogg, producer of Corn Flakes as well as Pringles chips, said on Wednesday it had launched a direct-to-consumer website focused on digestive wellness. The group plans to sell its new Mwell Microbiome Powder for gut health via the site to gather data on customer interest before it launches the product more widely.
E-commerce sales have doubled in the past year and now represent about 8.5% of the group’s $13.77 billion in annual sales, Kellogg said.
Pillsbury dough-maker General Mills also sees the benefits of tracking consumer habits more closely.
“We’re aggressively investing in data and analytics. We are gathering unparalleled insights from the first-party data we collect through our brand websites,” General Mills’ Chief Executive Jeffrey Harmening said at the conference.
On its Bettycrocker.com website, General Mills provides hundreds of recipes using Betty Crocker cake mixes and frosting. The site leads people to the closest store or an online retailer where they can purchase the products, thereby generating data for General Mills on what a particular customer from a certain zip code is buying. The company does not sell the food products directly on its website.
Consumers, however, may have to shell out more if they shop directly from brand websites.
Prices on the two PepsiCo sites, for example, were generally higher than those on Walmart.com or Amazon.com, Reuters checks show. On Walmart.com, for example, a 10 oz pack of Doritos Nacho Cheese was on sale for $2.50 compared to $4.29 on Pepsico’s website.
Kraft Heinz offers tins of soup, beans, pasta and baby food bundled into packs ranging from six to 25 items and costing between 10 and 20 pounds ($14.01-$28.03) on its UK website. It told Reuters the relatively higher prices of items and bundling of packs than on some other online marketplaces was to be able to eke out a margin after including delivery costs.
“Longer term, we see real value in this channel to be an insight and data channel for us,” Jean-Philippe Nier, head of e-commerce for Kraft Heinz’s business in the UK and Ireland, told Reuters. People are more prepared to order directly from manufacturers than they were before. The time is now.”
Graphic: Direct online sales to cross $20 billion in 2021 – https://graphics.reuters.com/PACKAGEDFOODS-ECOMMERCE/rlgpdexngvo/chart.png
($1 = 0.7137 pounds)
(Reporting by Siddharth Cavale and Nivedita Balu in Bengaluru; Editing by Vanessa O’Connell and Susan Fenton)
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