IN THE VALLEY 20. Thinking globally about venture capital
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Disclaimer : This episode is for informational and entertainment purposes only, no content of the conversation should be considered as investment advice.
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Today, Ibrahim Sagna welcomes in the valley Harvard Business School's Professor Paul Gompers, one of venture capital's prominent academic scholars.
5 BIG IDEAS DISCUSSED WITH PAUL GOMPERS IN THE VALLEY
1.I had not foreseen globalization as such an important factor for the growth of venture capital and private equity
Paul Gompers' academic career in venture capital spans over 25 years. Naturally, we began discussing how the venture capital landscape had evolved. The globalization of this segment of alternative investments has become something of particular interest for his research. In our conversation, we also explored how these ecosystems and their wellbeing have a direct impact on the overall economic well being of countries. His work does also a phenomenal job contrasting cycles in venture capital. Private equity and public markets. Two great books of his I strongly recommend are "The Venture Capital Cycle" and Advanced Introduction to Private Equity.
2. As a venture capital investor, our role is to gain access to teams that accept your capital and bring value regardless of the changing times
I asked Paul if they were some sectors that were more prone to yield consistent results in spite of the changing economic trends. He drew from his experience at Surge Capital to answer : there are often different trends happening in different geographies at the same time. As such, there are consistent opportunities to find opportunities to make returns. To Paul, the responsibility of a capital allocator is to find the venture capitalists who will be able to identify the right teams to create value.
3. I remember being on a call and telling Peter Thiel that investing in SpaceX (rockets!) was nuts
Perhaps the greatest lesson imparted by Paul in our conversation is about having the humility to recognize our own mistakes or preconceived notions. He told me about a particular time when - in relation to the previous point - him and his co-founders were commenting on Peter Thiel's decision to sign the first cheque of Founders' Fund II to Space X. At the time, the trends were more favorable to social media or internet-powered companies, not rockets. And yet, eighteen years later Space X is valued at USD 137 billion.
4. I'm excited by the optimism of young people
I had the chance to discuss with Paul about the upcoming trends he could see in the venture capital space. Beyond globalization, Paul spoke at length about the importance of diversity and inclusion and the role that younger generations had to play in correcting the precedent paradigm. To him, the access to the internet leads to inspiration that young people can be drawn from success stories beyond their own jurisdiction.
5. Cash can be a curse
Towards the end of our conversation, I had Paul comment on the notion that "Cash is always king". Paul gave a nuanced answer to this notion : to him, the past few years in developed markets have seen an outpour of cash which has diluted the importance of discipline for investors and entrepreneurs alike. He mentioned that economic downturns have actually led to the foundation of great enterprises : without too much cash, entrepreneurs can learn to focus on the development of their product, the recruitment of the right talent and generating internal cash flow..