There is so much cash sloshing about in the bank accounts of venture capital companies and anyone else with an eye on M&A opportunities that it must be good, right?
It is fascinating for industry observers, who can report, analyse and criticise M&A activity from the comfort of their own home office. Still, at the sharp end, it is a very risky time.
With so much cash, it is easy to become an amateur venture capitalist. It is easy to see a start-up specialising in anything from AI to machine learning, from the IoT to Metaverse payments/avatar design/data collection and analysis and who knows what – and wait for the money to come flooding in.
This is happening and fast. As CB Insights has said, more Unicorns have been created in the last few months than ever before. M&A activity in SE Asia is the busiest for a decade, and Meta has been buying companies at a rate that makes Usain Bolt seem a bit pedestrian. It is, of course, building the Metaverse, and the race is on to own the whole damn thing.
But so much cash creates its own problems.
Setting aside the boring ‘supply and demand’ and economics lessons also encourages mediocrity. There must be a fear that real innovation will become hidden behind a cloudy mirage of small companies shouting about their unique product, and would you like a demo.
With the number of startups and (mainly) second-round funding and onwards being awash with cash, how do bigger companies select the best for their latest ecosystem venture? The answer is ‘with great difficulty.’
Finding the right innovator for you is getting harder. The problem is that, nowadays, when decisions get tough, executives hide behind (er, choose) AI to solve their problems. Already large venture capitalists are using AI to detect whether a CEO is convinced by their own utterances and share prices move as a result.
Let us hope that the process of selecting companies to invest in does not end up like an HR AI programme, searching for keywords in business plans (it probably already is). With so much cash around, it is – some would say – the only solution.
This is exactly when the world-changing company is overlooked. You know, the one that is still operating out of the rented factory at the end of the street, who did not hire a PR company because, well, it hates marketing and believes their solution will ‘speak for itself.’
Their solution does indeed speak for itself, but if the noise is too loud, then it may never get the chance.
So much cash may sound like a great problem to have, but it doesn’t mean it is any easier to find greatness.
It makes it more difficult.