Financing Innovation: Constraints and Opportunities

Uncategorized Jul 05, 2021

Technological innovation is moving at breakneck speed. With the commercialization of space, artificial intelligence, 5g data networks, blockchain, autonomous driving, personalized and predictive medicine, and so much more - these are exciting times to be living in the 4th Industrial Revolution.

With long term prosperity of our planet in mind, the continued flow of investment capital to the innovation/technology sector appears to be one of the surest means of sustaining health and wealth for an even larger number of people. But how can venture capital rise to the occasion when so many innovative developments do not easily fit into the traditional VC model?

At the virtual Oxford Saïd Network Entrepreneurship Forum (OSNEF) in June - a two-day conference held virtually by The Oxford Saïd Business School for current students and alumni from around the world to engage in discourse around global business issues - Chōsen co-founder and Oxford MBA alumna Robin Connelley led a geographically diverse panel of entrepreneurs and industry practitioners to discuss the culture of innovation and entrepreneurship and its future.

Offering differing points of view from start-up entrepreneurs, legal and corporate backgrounds, the panel analyzed the symbiotic relationship between innovators and investors, then they explored the ideal pairing between the two in order to move into a brighter and more productive future. 

Venture capital plays a critical role in innovation as it allows entrepreneurs to conduct research, adopt technologies necessary for inventions as well as develop and commercialize them into marketable products. Accessing capital that is necessary to support the exponential innovation curve currently happening poses a unique challenge for many innovators, as many breakthrough ideas pose high risks and are fraught with uncertainties. 

Chōsen co-founder and serial entrepreneur Robin Connelley notes that true innovation means going forward into a brave world that no one has ever explored before. “When we are carving a new path, innovators and investors need to be prepared for massive amounts of uncertainty. On one hand, traditional venture capital favors safety - or incremental improvements compared to “moonshot” innovation. I believe that we need to be able to support communities of people doing true innovation where mistakes are part of the learning curve and feedback loop,” says Robin.

 Continuing on Robin’s point, Sudheer Perla, co-founder of JetSetGo in India and Vice President of Business Development of Tabreed in Dubai, commented that what drives innovation culture is purpose-driven entrepreneurship. “At the heart of any innovator’s venture is his search for meaning, his cause. Yes, not many mainstream venture capital funds favor betting on moonshots compared to innovative billionaires like Elon Musk. But when we can locate the intersection between what we believe in and protecting the interests of the principal, this can ultimately create more value and drive innovation culture,” says Sudheer. 

According to panel member Enrico Goitre, Associate at BonelliErede in Milan, Italy, VC investors are risk averse, especially when it comes to high innovation. “Traditionally, investors are not compatible in radical disruption as there is a big question mark on the outcome of the venture. They are more comfortable focusing on improvements of current technologies. But sometimes, there can be exceptions,” says Enrico. 

Miguel Colebrook, Senior Associate at Vinson & Elkins in London, adds that the current understanding of how VCs operate may potentially limit innovation, as most funds greatly favor incremental improvements. “Some ideas do get unfunded or underfunded because even passion and purpose has to be contextualized. They have to be tangibly accessed as a way of determining that it is worth investing money into the future. More often than not, VCs will skip over to projections and financial analysis, and if it fits into their investment profile. But of course, this can always be optimized,” says Miguel.

Despite periodic wars, financial crises and a pandemic, human talent and commitment to technological innovation have driven dramatic economic growth over the past 25 years. We propose that conscientious investing is a key to maintaining this pace and quality of growth.

Stay tuned for more on the diverse points of view in this timely discussion on the support needed to respond to the exponential innovation curve vs the traditional VC model of incremental innovation in our upcoming newsletters.

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