Next Wave: Venture investing is for everyone. Especially corporations

First published 11 Febuary, 2024

Investing venture capital may be one of the esoteric branches of high finance, but the core concept of venture investing—taking distributed risks on the chance of enormous upside and limited downside—is not something that only nominal venture capitalists should do. Governments, and corporations especially, should be bigger venture investors than they currently are.

Why? Because venture investing is a philosophy about risk versus returns more than it is a financial activity. This does not simply mean that governments should pour more money into startups—even though they should. Or that corporates should create more programmes that finance early businesses—even though it would be welcome. The point is that when large organised groups of people (whether they are governments or corporations) lose ambitions that are moonshots and cease to venture beyond comfortable cocoons, they inevitably lose an essential dynamism that is part of the human experience.

“Venture investing is for everyone” means that investing resources, not just money, into a process, with the potential for big positive returns, even if there’s a risk of losing everything, is progress nonetheless.

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If you strip off the “tech” and “startup” façade from how venture investing is commonly understood, you will quickly see that humans often try to spread out the amount of risk we carry at any point in time, in every area of endeavour. From education to career and relationships, it is almost intuitive to “not put all your eggs in one basket”. Venture capital investing is exactly this same activity, but with financial maths, wads of money, and “tech” in the picture.

The other thing that separates venture investing from regular investing is that, as a financial philosophy, it only works when risks are distributed based on enormous potential for oversized gains and a significant downside that is limited to zero. Understanding the risk-reward balance of venture investing is why this type of thinking is inherently challenging.

All technological progress (including economic progress) has always been the child of venture investing in some form, whether what you’re considering is the launch of the rocket that put a man on the moon or the socio-economic reforms that helped China lift millions from extreme material poverty.

It is the same philosophy that helped Steve Jobs rebuild a floundering Apple, and in our opinion, it is the same reason why partnering with OpenAI makes sense to Microsoft’s C-Suite and board.

To bring the point closer to home, it is easy to legitimately point fingers at the many failures of venture capital and call for a more conservative approach to financing things like startups. But venture capital and venture investing are not necessarily the same thing. In fact, for the purposes of this essay, it is helpful to think of venture investing as investing in anything that has the potential to deliver outsize positive returns relative to the risk that the investment goes to zero. Think about human capital development, think about core services and infrastructure, and think about a corporate DNA that keeps pace with global business and technology changes so that it is relevant to customers and workers.

Africa’s technology ecosystem, and indeed economy, may not grow to the admirable heights we dream of if everyone, from your local town government head to the suits in boardrooms, does not take investing in ventures (not just startups) seriously.

This is not an argument for everyone to ditch their jobs and become financiers of startups. Rather, if we allow an overreaction to poorly thought-out venture capital investing to affect our understanding of the risk-reward balance of investing for significant positive outcomes across all aspects of the economy and social structure, then we will have created another issue.

In essence, more of Africa’s mature companies need to take part in the business of venture investing—again, this is more than simply providing capital.

Many examples surely showcase that this business can work very well for firms and people willing to put in the work. Safaricom, Kenya’s leading telco, has had multiple tries at it with varying levels of success. For instance, it launched the $1 million Spark Venture Fund more than a decade ago, which supported the likes of Sendy, a logistics company that has since closed shop. The company seems to have learned its lessons and modified its strategy to include more than just investing capital. There should be more of this from African telcos, African retail giants, and African governments. In fact, the big foreign international companies could significantly increase their impact if they convert a portion of their idle resources into venture investing assets. Who knows, it may do far more good than their current CSR initiatives.

Kenn Abuya and Abraham Augustine

Senior Reporters, TechCabal

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