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Majority World Report 2013
Risks & Rewards
@capeDublin Web Summit, 2013
Some home truths about business of innovation
10k business ideas1k firms started
100 VC funded
20 IPO
2 market leaders
Nobel Prize in
Economics2006
ProfessorEdmund Phelps
Less than 10% of business ideas even get started
55% of US venture capital investments are written off
x<0.5 0.5<=x<1 x=1 1<x<2 2<=x<5 x>=50
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10
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% Cost % Value
62% of EU investments are written off
x<0.5 0.5<=x<1 x=1 1<x<2 2<=x<5 x>=50
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% Cost % Value
But the capital which survives, backs businesses accounting for 21% of US GDP…..
1978 1981 1987 1995 1995 1997 1999 1999 2005
and $1.4tn in new market value
creating 440k new jobs
with $545bn in new annual revenue
serving >1bn customers
Source: HIS Global Insight
And in Europe we are starting to build waves of similar dimensions
So are venture capitalists just bad at assessing risk or do they really understand
innovation economics?
Aren’t accelerators just applying logic of venture economics even more
aggressively….?
And marketplaces adding further scale to open up risk adjusted and scaleable funding to new sectors…..
Creative & Consumer Electronics Startups
Microfinance SMEs
We’ve had almost 60 years of evidence on how innovation economics can drive explosive social and economic value
creation…..
Semis
Hardware
SoftwareInternet
Mobile CloudNetworking
Crowd
But can venture’s real legacy be a broader understanding and application of innovation
economics?
Extreme risk of 62% write-offs is definitely not for everyone, including many entrepreneurs and venture
investors…...
In fact a 2% loss ratio for banks lending to SMEs is already pushing the
boundaries.
But there is so much cash out there….
$266bn FTSE100($5k per UK citizen)
$85tn global AUM($12k per human)
Can’t we be more adventurous on how we allocate and manage it?
We know 7% of small companies create >50% of new jobs
.
We know innovation creates priceless economic and political capital
.
So given the evidence, shouldn’t we be prepared to risk more on radical
innovation?.
Even in the US we are still falling short
Which is a shame, as radical risks create biggest rewards….
.
There is a huge area between 2% and 62% loss, surely we can loosen our view of risk a little?
2%Corporate
Finance
62%Venture Capital
Look at the facts again
x<0.5 0.5<=x<1 x=1 1<x<2 2<=x<5 x>=50
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Power laws mean you have spectacular losses or wins
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£10bnIT write
off£200bn mkt cap
If you feel comfortable managing risk, you might as well shoot for the moon
And in Europe we have a generation with nothing to lose….
.
But how can we expect people to embrace risk when large corporates, governments and educators won’t?2%
Corporate 62%
Venture
We have grown up in cultures with relative excellence in health, education, security and
political stability
But what skills have we developed to navigate this new chaotic and risky
environment?
Almost none
Europe is ahead of US and Japan despite itself
1.2bn can like
> 1bn can search
>500m can pay
>750m can Tweet, Skype, Whatsapp or Snapchat
But growth is somewhere else
And it’s a big world out there
So how we can get more value from $4tn we spend annually on educating and preparing people for their
future
x<0.5 0.5<=x<1 x=1 1<x<2 2<=x<5 x>=50
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% Cost % Value
$570 per person
???
So how can you help yourself?
Learn to work on the network
Get out there and explore
No short cut to being a grandmaster
“achievement is talent plus preparation.”- Malcolm Gladwell
Learn by doing
Use your time – do tasks
Use your expertise in almost any field you can imagine – curate, contribute, consult,
teach
Use your talent – write, make music, take pictures, make movies, make stuff
Invest and share your major assets – savings, car, house
If you have something to offer there are now 3bn people connected to you – already 10x world’s most efficient
market EVER
Some advice for your trip
You have to learn take risks
Time Emotions Money
Understand Markets
Watch for Demand Signals Study People
Self-awareness & honestyIntrinsic Motivation & social capital
Determination & humility
Creativity & ability to inspire
….. Are they lucky?
Emotional intelligence
You can never de-risk people element, so look for…
Take your losses as early and cheaply as you can and move on
x<0.5 0.5<=x<1 x=1 1<x<2 2<=x<5 x>=50
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% Cost % Value
Impossible to know where success will come fromJust try stuff out
Be open, not closed
Embrace the network – its your greatest untapped resource and now it can talk back
Spread your risks
Always reinvest some of your winnings
But if you find the wave and you know what you’re doing, you can climb the power curve, and win – spectacularly
and globally
So aim too high. The prize is huge and we all have an
amazing start just by being here
Embrace your 62%
@cape♯risk62
