Trends Watch: Venture Capital

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.

This week, Elana talks with Rob Bibow, Managing Partner, Fission Ventures.

What is your outlook for venture capital?

The average return for VC over the last 25 years is more than 30% per annum, according to Cambridge Associates. Meanwhile, VC has virtually zero correlation with the equity markets. We think it is about time that individuals had access to this asset class, which has historically only been open to institutions and the ultra-wealthy.

What areas present the greatest opportunities?

This is far too big a question to answer in a small space, but in general terms, software and artificial intelligence (AI) are going to transform the world we live in. I think about artificial intelligence in much the same way people once viewed the steam engine or the internal combustion engine. It is something which helps you do other things faster and better. Also, we are still in the early days. We still do not know everything that can be done with AI. Software and AI are going to replace humans progressively in all sorts of jobs. We all know that they will replace drivers, but they will also replace lawyers, and so many other professions.

What are the biggest challenges you face?

Our biggest challenge is always finding good deals and getting into those deals. The best deals in the venture capital world can now choose their investors and these days, in addition to finding the deals, we also need to get into those deals.

What keeps you up at night?

Mostly my seven-month old daughter. But aside from that, venture capital is a complicated business. There is no other investment business I know, where you have a reasonable likelihood of investing in companies that will go bankrupt. In VC, we believe in every single investment we make; however, we also know that statistically, we are likely to lose some of our companies. Venture capital has a historical annual average return of over 30%, but investment returns do not come without risk, and generally, the higher the return, the higher the risk. The question is really how we as investors manage that risk. Our strategy is specifically focused on minimizing risks by (a) only co-investing alongside recognized venture investors, and (b) broadly diversifying each annual portfolio we create, so that each portfolio will have 20-30 companies, diversified by stage, sector, geography, etc. As Harry Markowitz, the Nobel-prize-winning economist famously pointed out, diversification is the only free lunch in investing.