As a venture capitalist, I spend my time doing two things — looking at our next potential investments and liaising with our investors. Both tasks are challenging. Of over 1,500 startup applications we reviewed in one year, we only made 26 investments. The competition in the startup space is fierce. The same applies to building relationships with our investors, who are family offices, accredited investors, and high-net-worth individuals. It is our turn to compete within the alternative investment asset class with other venture capitalists, private equity shops, hedge funds, real estate investments, commodities, arts, and other collectibles to secure a piece of the 10th percentile of our investor’s well-diversified portfolios. The good news is — alternative investments are on the rise!
The rapidly growing sector of alternative investments
Investing is driven by an intense search to maximize income. Since traditional asset classes have been providing less and fewer returns on the investments, institutional investors are moving towards a private equity approach — riskier investments in tangible assets over a longer time frame. In its recent study, PwC states that this current trend will require an analysis of alternative investments on the basis of discrete return and risk. Investors have to dig beyond the established asset silos, embracing the emerging world of alternatives. Investors, capable of identifying the right opportunities will capitalize on them by becoming sufficiently flexible when it comes to their investment strategy.
The study identifies substantial growth in the private equity sector, of which venture capital is part of, forecasting the sector’s annual expansion by 6.3% and 9.8%, respectively, for the two periods: 2017 and 2025. The asset class is expected to rise from USD 5.3 trillion in 2017 to USD 10.2 trillion in 2025 respectively.
Jim Barry, CIO for BlackRock Alternatives is bullish on the alternative investment asset class:
«Alternative investments are essential. Over the last ten years, they are no longer an alternative, they have become a core part of an investor’s portfolio. In particular, the demand for private assets has increased substantially as investors strive to boost returns, generate incremental income, and provide diversification from the balance of the portfolio.” He sees an opportunity where others are seeing difficulties: “Between 2007 and today, the private market universe has more than tripled in size from two and a half trillion dollars to over eight trillion dollars. However, access to and investing in these longer-dated illiquid investments is more complex. The economic impact of the COVID-19 health emergency and the associated market volatility underscores the critical role that alternatives and specifically private markets can play in building more resilience in our investment portfolios.»
What we understand by «Technologies for Tomorrow»
Today´s socio-economic trends and the digitalization push accelerated by the Corona pandemic cause technology-driven markets and applications to grow over-proportionally. At CV VC, we have identified 6 verticals, which we call «Technologies for Tomorrow» or T4T:
It is expected that blockchain technology will play a catalyst role in driving innovative solutions in all these sectors.
Forward-looking investors rightly see promising trends in technological distribution and new business model opportunities since there is plenty of value to be had from the technology-driven change. This, however, shines a new light on the way alternative investment fund managers, and more specifically venture capital and private equity firms use and understand technology.
I recently participated in a virtual discussion on the topic of connecting two prominent startup ecosystems: The Silicon and the Crypto Valley. I was joined, amongst others, by Matthew Le Merle, co-founder and Managing Partner of Fifth Era and Keiretsu Capital. See what he has to say about Switzerland’s current development in the alternative investments space in this short video:
Zurich, Switzerland is a global asset management hub with a knack for alternative investments
Echoing Mathew’s assessment of Switzerland, PwC’s recommendation to money managers in the alternative investment space is:
“Organizations should have the skills to understand the impact of new technologies on investment strategies, or knowledge of emerging markets. We believe this will require asset management teams to become more diverse, with a wider range of commercial experience and geographic presence. Business units should be structured and incentivized to look beyond traditional investment silos, to challenge lazy strategies or to identify the threat of new entrants and new business models.”
I believe that Swiss asset managers are leading the way in the digital asset space. With financial institutions like Sygnum, Seba, Maerki Baumann, Incore and Crypto Finance leading the way, Mathew believes Zurich is the leader in the global asset management space, and I fully agree.
During the same discussion I weighed in on the reasons why institutional investors are drawn to Switzerland and are considering investing in new technologies — Technologies 4 Tomorrow or T4T as we dub them:
The CV VC ecosystem approach to venture capital
Ecosystem — the admittedly inflationary used word makes a decisive difference in today’s technological, global world. At CV VC, we have identified four pillars that form the foundation for a setting that enables its stakeholders to flourish:
Switzerland has all of that and calls itself the Blockchain Nation Switzerland, also known as Crypto Valley. At CV VC, we take advantage of this excellent starting position and leverage it with our own ecosystem or platform approach to ensure that our startups can develop to their full potential. When they join our CV Labs incubation program at one of our co-working spaces (Zug, Vaduz or Dubai), they are surrounded by many other blockchain startups that share the same challenges, needs and most importantly the same mindset.
Our corporate ecosystem partners offer services tailored to their needs. At our CV Summit conferences they can showcase their projects to investors and companies from all over the world. And through our international hubs, global expansion is not only supported by our advisory team, but part of the journey together with our founders. This ecosystem approach is what sets us apart from other VCs active in the blockchain space. It takes into account that communities such as startup ecosystems in today’s digitalized world are not centralized, but decentralized all over the world, just as it is the core of blockchain technology.
Investing in a decentralized world
This fact has also been recognized by the World Economic Forum, which is a global business ecosystem in its own. The Forum published a position paper on ‘The Future of Capital for Entrepreneurs and SMEs’ and sees the venture capital industry evolving. Traditionally, the VC industry was dominated by the US, with Silicon Valley as the major hub. This is not the case any longer. The current trend indicates growth in multiple hubs, located across the globe. This is both due to the saturation of the asset class in developed markets and significant growth in emerging markets.
There is also something to be said about VCs specialization, a focus, so to speak, on a particular technology or trend. The WEF report continues to report that most General Partners, traditional or otherwise, are likely to pursue the specialist model. Private VC firms, corporate VC arms, private equity firms, and hedge funds in developed markets are specializing in a particular set of industries and are often targeting a single stage of funding, be it early or late, deploying either seed- or growth capital.
Both are reflected in CV VC’s strategy of establishing a global presence in all major blockchain hubs (EMEA, Asia and America) as well as the specialization in blockchain technology.
The WEF report gives a special nod to the ecosystem approach. The Forum claims that venture capital ecosystems are set to grow organically. Such ecosystems are led by local principals, being recognized on a global level. WithCrypto Valley being the home of five blockchain / crypto unicorns (companies with a valuation of over 1Billion: Ethereum, Cardano, Dfinity, Tezos, Polkadot), the ecosystem drives innovation and growth. I personally view this as the true value of everything we do in the alternative investment space, as I summarize our ecosystem approach here:
To conclude, I will leave you with more data, this time around from Preqin on how the institutional investors will allocate their investments:
“The data show that investors plan to increase their allocations to three major categories in the next five years: 79 percent said they would increase their private equity allocation… … As such, private equity assets are expected to increase by 58 percent over the next five years, overtaking hedge funds as the largest alternative asset class, according to the report… …Much of that growth will be from family offices and sovereign wealth funds. Fund managers view family offices and sovereign wealth funds as more important sources of capital in 2023, according to the report.”
We look forward to connecting with institutional investors, family offices, sovereign wealth funds to showcase how our investment strategy can provide exposure to the technologies that will shape tomorrow’s world.
Mathias Ruch, Founder & CEO of CV VC