A Venture Mindset, A Capital Outlook

[Music] hello everybody it's a great pleasure to be here let me start with a quote from my recent book The Venture mindset and that quote became the most famous in the entire book for Founders for investors for large companies but also for Regulators in Emerging Markets such as United Arab Emirates and Abu Dhabi and the quote is have you ever heard of a German Google French Tesla Japanese Amazon Italian Facebook British Apple Canadian M it comes and the reason why not is that none of these countries historically developed the Venture Capital industry it's only in the United States for the last 50 years the Venture Capital industry critically important and led to the development of all these companies so without the Venture Capital industry all these companies would not have existed and our life would have been quite different in fact when we look at every single company that goes public in the United States it turns out that every single company that goes public is VCH Capital back primarily and out of each Dollar in the United States spent by research and development of all the companies that were created in the last 50 plus years 92 cents is spent by companies that used to be primarily Venture backed when they were small companies and if you look at the top 10 companies in the US right now we talk about magnificent seven seven out of total companies what people don't know very often is that every single of these companies was Venture backed so as a result of this if you would like to invest in the future of innovation that is going to be dramatic in the last 10 what was dramatic in the last 15 years will be even more dramatic in the next 105 years venture capital is a very important answer so how to get the Venture mindset um I wrote a book based on all my research at Stanford over the last 20 years in which which I articulated the nine principles of the Venture mindset every single principle is about how smart VCH capitalists make decisions and how we from Founders to investors to large companies to Regulators can innovate can imitate those VCH capitalist to be really successful so let me share with you just one of those nine principles kind of to wet your appetite when I look at every single Venture investment in the United States over the last 50 years based on the data that we assembled at Stanford Venture Capital initiative this is what we find we find that out of 20 early stage Investments on average only one becomes truly successful and using an American Sports analogy it's called a home run we can call it an outlier or a jackpot around 10 to 15 Investments are going to fail they're not going to be successful they're going to be strikeouts and then around 2 to three to four are going to be relatively successful more amazingly we found that venture capitalist who are much more successful who are marquee names who in fact back all those Magnificent Seven and I'm Bing right now the unicorns of which there is more than thousand in the United States right now those Venture capitalists are much more likely to experience failure so unless you Embrace failure unless you Embrace high risk in very very specific ways it's unlikely that you're also going to experience great success when I look at at many emerging markets for example I work with a lot of large companies on their corporate Innovation what I very often observe say in their corporate vent Capital initiatives that they tend to be playing safe they tend to be risk averse they tend to over overwhelmingly prefer safe returns to taking a lot of risk that also means they are very unlikely to result in GR great outlier returns so what is the morale the morale of the first principle of the Venture mindset is that you have to design the system within your organization within your Innovation ecosystem within your Venture fund or within your startup to get an outlier return so let me give you one example of how large organizations do it when we think about large companies of which there are m here there are three ways to meet the wave of disruptive innovation first is to improve internal Innovation and you can do it in many many optimal efficient ways you can also acquire Innovation but more recently the way many organizations go is to create corporate Venture Capital units in fact last year became the first around the world B for every single dollar invested in startups there are now more around 53 cents out of each dollar invested by corporate Venture those money coming from large companies then by institutional Venture professional Venture Capital firms around 47 cents so corporate venture capital is becoming very very important and my team at Stanford has been following every single of those corporate Venture funds now it's more than 2,000 of them and what is the reality the reality is that most most of them are not designed for Success only a few of them are designed for Success because they follow every single principle of the of the Venture of the Venture mindset here is how you implement large companies Implement when they design corporate Venture units this first principle if you look at this triangle or at this pyramid you can think of each large organization as a portfolio of bets portfolio of Innovative bets you have your core at the very bottom that is your current cash flow generator you have your adjacent in the middle that is the one that is depends on incremental Innovation Innovation that increase increases your productivity improves your product but it does not change your business model it does not bring you to another industry it does not bring you new types of customers or new relationship with the customers so that is what I call increment mental Innovation and large companies are very good with it and then at the very top new and that is where corporate Venture if correctly designed positioned for example many smart corporations organize their corporate Venture funds thousands of miles away from their headquarters to ensure that those corporate Venture units bring the best from outside the large company let me give you an example of one of the most Innovative companies Amazon we all know about Amazon e-commerce and uh obviously the core there are a lot of small AB test experiments run every day every time you go to the Amazon website you're being a guinea pick because Amazon is going to experiment with you just a little bit and then there's a lot of edj into incremental innovation in fact uh my Stanford students went to Amazon and participated in many of those businesses that launched within Amazon e-commerce but that is adjacent incremental Innovation but now let's think about what means new what means disruptive innovation for large companies such as Amazon one example was AWS a cloud that had nothing to do initially with e-commerce and it was a very very risky proposition and yet now it constitutes more than half of Amazon r revenue and notice by the way that it is a very very risky Enterprise for example you may never have heard about fire phone that was Amazon's attempt to compete with iPhone but when fir phone was launched and with a loss of almost $1 billion at the time a lot of money for Amazon failed Jeff bezer said the size of our failures should grow with the size of our organization so this is one of the reasons why Amazon that follows this principle but also eight other principles that I identified in my book is one of those Magnificent Seven now this is for large companies and very often I work with the CEOs of large organizations on how to implement and how to design corporate Venture and internal corporate Innovation but what about Founders and what about Investors as I mentioned my team and I have been following every single American unicorn and every single unicor founder and recently we've uh published the unicor report where we identified hundreds of factors behind success and failure of unicorns if you're interested please uh check this out and I will be happy to get questions from you on my LinkedIn or by email thank you so much [Music] I