In a year marked by rising inflation, economic chaos, imploding financial markets, a tighter VC market and retreating institutional investors, many entrepreneurs are probably wondering how to convince investors to step into their big ideas.
It’s a conundrum that confronts even successful executives like Bob Iger, a 15-year-old CEO of entertainment giant Disney who now works as an investor and business advisor.
Having already taken big and successful gambles with the Pixar and Marvel acquisitions, Iger faced a similar challenge as he pondered how to hit back against streaming media giants like Netflix, Apple and Amazon.
“We witnessed a massive disruption to the media business, largely led by technology-based companies,” Iger told the recent Macquarie Technology Summit†
In large companies “everything is designed to protect the incumbents” [and] keep things as they are,” Iger said, but it was clear Disney had to disrupt itself to chart a long-term path to success.
“It wasn’t easy to do because it took significant investment” to create new content and build a streaming platform capable of scaling to millions of users, he explained, citing the lost revenue from the cancellation of the selling lucrative content rights with other platforms.
“We’ve been down in revenues and up in costs,” Iger said, “and we had to tell Wall Street ‘don’t worry, we’re going to cut our profitability by a few billion dollars.’ And we were pleasantly surprised that they welcomed the move. — because they believed that if anyone had the ability to do it, it was us.”
Faced with the unexpected success of Disney+ – which signed up 10 million customers on the first day, signed over 2 million Australian customers in the first 4 months and had 4.66 million Australian subscribers by the end of 2021 – “we shocked ourselves,” Iger said.
The reason for that success, he said, ultimately came down to one simple thing.
“I found the best way to swim against the tide,” he explained, “was to be determined to innovate and change, and to keep pace with change.”
“To do that, you have to be very clear in your thinking and intent, and indicate the direction you think the company should take. And you have to be very clear in the reasons why that makes sense.”
Change the model
Due to its sheer size, Iger’s situation may seem far from that of startups in an increasingly difficult economic climate that VC has called Bible Crunchbase’the VC reset’ — in which the industry’s VC funding fell from $99 billion ($70 billion) last November to just $55 billion ($39 billion) in May.
“While the enthusiasm and specific circumstances that drove valuations to record highs would always lose some momentum,” said Shemara Wikramanayake, CEO and CEO of Macquarie Group, in her keynote address, “the long-term role of technology in addressing societal challenges undiminished great.”
And while the current circumstances mean “it’s a time for companies to rethink their models” [and] consider a more conservative near-term approach to their available capital and funding,” she continued, “we remain optimistic.”
Several institutional investors said they rely more on tech industry experts to identify the best companies to invest in — and that the most attractive are those with a clear purpose.
“Technology is a great opportunity to take a long-term view,” said Damian Graham, chief investment officer at Aware Super, which invests about 6% of its capital in private equity — and a third of that in venture capital funds.
“We’re not trying to be the experts on all the different technologies and early-stage companies,” he said, “but we’re looking at different opportunities to understand how those companies are positioned… to make sure we’re doing it responsibly. allocate capital.”
And what makes for a responsible investment?
“There has to be a strong use case,” Graham said, “and a very strong reason why the company exists and what problem they are trying to solve. Then they have [to have] quite a good chance, with good management, to be successful.”
For many investors, technology companies are less of the focus of their investment as a mechanism to support broader environmental, social and governance (ESG) objectives – for example, AgTech companies that have innovative Internet of Things (IoT) technologies or autonomous harvesters developed, drones or other equipment.
Technology will play a vital role in decarbonising the economy, Graham added: “It is one of our investment beliefs that if we manage ESG risk better, we will deliver a better outcome for our members.”
Startups that can clarify their purpose, especially in the context of such broader objectives, are likely to find funding regardless of the near-term economic turbulence ahead.
Investors are thinking long-term, according to Wikramanayake.
“There is little doubt that the digitization of the global economy will continue,” she said, “and based on past experience, the current period of disruption will give rise to new ideas and new companies that support the next phase of growth for the sector.”