Over the past decade quantitative easing has suppressed fixed income yields globally, this has led to a surge in equity investment. With stock markets showing lower returns, venture capital has become increasingly popular amongst private investors, especially with the significant tax incentives available. Here we look at how institutions tend to invest in venture capital to explore what private investors can learn.
What Investors Want
Equity Invested in UK SMEs has increased significantly in recent years
A recent report published by Oliver Wyman and the British Business Bank on the best ways to generate higher returns from pension pots, provides a clear insight into the potential returns from investing in technology and other private companies especially as part of a longer term growth strategy.
With investment in UK Small and Medium Enterprises (SME) increasing significantly over the past three years, the report clearly indicates the higher returns possible from this sector.
To achieve a high short-term return on investment then you have to embrace high risk.
As all seasoned investors know, it is essential to use diversification to bring down the overall risk of the portfolio. This is particularly true when investing for growth. A well-diversified portfolio in a range of smaller companies that tick all the boxes will still have failures. Successful portfolios typically will make returns from less than 20% of the portfolio, with these companies achieving stellar growth and providing a healthy overall return to the investor.
The fintech sector continues to show growth and innovation. At the same time, it is not an industry that is dominated by the biggest names. Innovation and a creative approach to technology allows smaller start-ups to compete toe to toe with more established brands. This makes it a very popular choice for those looking for the highest growth investment opportunities.
Venture capital funding of fintech start-ups topped $32 billion globally in 2018 according to CB Insight. At the same time, in 2018 there were 30 fintech exits in the US at over $7 billion in value. M&A activity is expected to accelerate as financial services incumbants acquire emerging fintech companies in an effort to stay competitive. With more fintech unicorns than any other industry vertical, fintech is widely tipped to remain one of the highest returning VC sectors with no shortage of high potential areas to disrupt in financials services.
For investors that have not already jumped on the fintech bandwagon, fear not as the next wave of value creation from younger fintechs could well be even bigger than the first.
Innovation in the tech industry moves at breakneck pace. As technology evolves, it enables even faster change and progress; the resulting wider adoption and usage causes further acceleration of the rate of change, until eventually it becomes exponential. When mobile phones were first introduced, they took 12 years to reach 50 million users; the internet took just seven years to get to the same point. Once digital technologies emerged the rate is accelerated dramatically; Facebook reached 50 million users in 4 years; WeChat, one year and Pokemon GO, nineteen days.
Disruptive technologies are predicted to accelerate and transform many industries at a rapid pace throughout 2019. These technology trends will shape the world and the future and will present opportunities for business owners and investors alike.
Technology innovation over the past decade has seen most businesses embrace digitalisation to increase efficiencies and customer reach. The digital framework is set to become the foundation for disruptive technologies to offer businesses extraordinary new capabilities as services become highly customised, real time experiences built around customer needs and preferences.
Here we further review the new technologies tipped to be transformative in 2019.
Whatever the economic impact of Brexit will be, it is creating huge uncertainties with regards future trading conditions and new market opportunities. These characteristics are consistent with what companies face in times of recession, so can you increase investment returns through Brexit by learning from how companies prosper during large recessions?
2018 was rife with market volatility, political upheaval, climate disasters, personal data dystopia, global economic uncertainty and much more. The general view seems to be expect more of the same for 2019.
After the Brexit vote and Trump’s election in 2016, economists, analysts and investors were pretty fearful about market prospects for 2017, yet it turned out to be a fantastic year for the global economy.
Then, at the end of 2017, there was a real sentiment of optimism for 2018, which turned out to be a very disappointing year pretty much everywhere apart from the US.
Now, there is widespread doom and gloom for 2019. So the question is; will things pick up, making the forecast wrong for the third year in a row or are the pessimists going to be proved right?
Diversification is an important strategy for investors and is when you spread your money across different asset classes and also investment types.
The goal of diversification is to spread risk and improve the consistency of your investment portfolio.
The financial crisis and subsequent monetary easing, has affected the way certain assets have performed and also the make-up of a well balanced portfolio. Below, we look at how investors are diversifying in today’s market.