Kurzweil’s Law

My co-head Dan Dees and I co-author a weekly client message on things we’re seeing in our business that inform our worldview.  Periodically, we will post these missives here to connect and engage with a broader community. 

Our seat at the nexus of global capital markets activity provides a unique perch to observe tectonic shifts in the global economy. In 2021, the global investment banking industry shattered records for both M&A and financing volumes. A key driver of this performance was the breadth of activity. Prior years were concentrated in the technology and healthcare sectors. Last year every single industry, product and region experienced outsized activity. What drove this remarkable breadth and what can we learn from it?

Some of the activity can be attributed to pent-up demand after a COVID lull, and may have been accelerated by the policy-induced cocktail of high growth and low interest rates. But there’s a secular shift taking place in relation to technology. We no longer consider a small subset of companies as technology companies, the purview solely of our ‘tech bankers.’ Technology gains are benefitting each and every company, spawning a new taxonomy and vocabulary: clean tech, prop tech, ed tech, fin tech, auto tech, med tech, ag tech… the list goes on. Our organizational structure, our mind-set, and our coverage has accordingly tilted to a technology-first approach to all companies irrespective of size or sector.

We were asked recently to value a company that has been in existence for hundreds of years. Part of this process of valuation involved a discussion on comparable technology platform companies, as this historic company has evolved and grown to keep pace with disruptive forces in the economy. Playing it safe and staying the course is not riskless - adapt and embrace technology or risk extinction.

Having witnessed many cycles before, we don’t declare a new paradigm lightly. Disruptive and innovative new companies are being formed daily, and the largest companies in the world are innovating in fields such as cloud, blockchain, robotics, artificial intelligence and virtual reality at an astonishing pace. Kurzweil’s law of accelerating returns describes exponential growth of diverse forms of technological progress leading to “technological change so rapid and profound it represents a rupture in the fabric of society.” These forces will drive future economic growth and are inherently deflationary, causing a profound and potentially long-lasting impact on valuations and deal activity.

We hope to have the opportunity and the privilege to work with our clients to support transformation and innovation in their businesses. A big picture thought: if innovation continues at this pace, think of the world our children and grandchildren will inherit in the decades ahead.