How to Raise Capital in 2020...

Outlook.

Dear Colleagues

2019 has certainly been a challenging year especially for founders looking to raise capital and push their projects forward. With so many distractions, the trade disagreements between China and US, negative yield bonds and of course the overhang of Brexit, it is any wonder progress was made. 

But despite this global economies have not succumbed to recession, not yet anyway, and the outlook remains pretty positive. So as we enter 2020 what can be learned from 2019.

Capital Shifts:

It has been another year where Private Wealth and Family Offices have pivoted towards direct investing and reveal a preference for technology and sustainability investing. Many families have shifted to a 70% tech bias and with some $63trillion of private capital waiting in the wings for the right opportunity, we remain bullish we can attract Family Offices capital as the preferred funding channel for the right opportunities. 

But for many Founders approaching Ultra High Net Worth individuals and Families is a daunting task, something that has taken us three years to achieve any sense of recognition amongst the worlds most successful families. Having already invested considerable time and resources it remains a largely a ‘fickle art’ rather than a science, where timing is everything.

“The secret sauce is of course telling the right story”… 

Across our businesses we have taken note of broad changes in the market, a continuation of trends that started much earlier. We have spoken to and had dealings with hundreds of families between 2017 - 2019 and our insights are as follows:

Firstly, there has been a significant increase in the number of Family Offices globally, not just for efficiency and tax planning, many have set up front of house operations with the sole purpose of direct investing. The biggest influx has been in Asia, Malaysia and Indonesia where a new wealthy generation has embraced technology, Fintech and industry.

The issue with this of course is the front of house teams are small and they are not short of deal flow. However these small teams often do not have subject matter expertise and struggle with understanding Deep Tech aspects of projects, which manifests in either poor investment decisions or not investing in things because they are far from understanding it.

Secondly, families will have their passion projects that may be a reflection of how their wealth was accumulated, or driven by a need to give back and make a different kind of contribution. Of course they lean towards their comfort zone. Quite often we see families that may have made their money in industry, and may pivot towards being supportive of climate action, renewables and alternate fuels.

Other family members feel privileged being born into a family lineage, which gives them an opportunity to make a difference, right a wrong and get behind causes, which soon become ‘passion projects’. While others see investing in Sustainability, Impact Projects and Tech as a sensible financial decision and portfolio risk management. As sitting on cash, which many are right now is depletive and costly. 

Third, Families remain difficult to convince and this is where personal relationships hold a lot of weight and sway. This is because criteria for investing can be very different to traditional Venture Capital channels with entirely different 'hot buttons'. It is worth mentioning families are global citizens, often living in different parts of the world. They are well informed and receive great macro economic data. They tend to know what is going on, although they may not be in the weeds of the detail. This offers a big clue to that which gains their attention.

Fourth, we note that projects with complete product (offerings) and ideally some customers (certainly committed LOI’s) with a great story to tell, are attracting a lot of interest from this community. They like projects where the inflection point to ‘lift off’ is close, doesn’t everyone. That with just a little bit of capital injected will see the project starts to scale. Unfortunately this community are less likely to invest in software or a platform being built, or development of an unproven technology. As this lends itself to more traditional early stage technology VCs and Crowdfunding sites.

What does investable look like…

The hot topics and sectors remain technology centric businesses. I know what you are think, all businesses use technology, but for others the fundamental use is a multiplier to value. My point here is whether or not the technology is accretive to value or simply part of the proposition solution. It matters a lot, as we are fortunate to have some many potential game changers arrival all at once. 

Families however remain nervous of the recent evolution of token offerings and digital securities, as to them this often doesn’t represent ‘product’, in the conventional sense of something they feel comfortable buying. And whatever the opportunity they expect it to be shrink wrapped, with all the right regulatory and compliance layers, where the instrument can exist in key markets with sufficient liquidity. Apart from Bitcoin, maybe Ripple and one of two others families see tokens as entirely speculative and high risk. Although some families are experienced and hold significant positions in crypto, if you present your project as a token sale, despite having a solid proposition, the attention will be on crypto elements.

Blockchain & DLTs

We are well down the road on Blockchain and Distributed Ledger Tech as we enter our 7th years working with this technology. I have worked on literally hundreds of projects since 2016 and it is apparent that many founders do not yet recognise the power and potential of decentralisation. As not only an enabler to build new business models where everyone can win, be rewarded and trusts but also as a means to unlock commerce so the business is able to scale at pace. 

Decentralised business models when all the attributes are in play generally scale a lot faster than traditional business models, and savvy investors know value is created by getting ‘eyeballs’ and repeat participation, as users are onboarded and served. Over the past couple of years we captured the essence of best practise which I used to develop a tool set for designing and launching decentralised models. 

Virtual Reality

An often mis-judged tech, VR (and augmented reality) are fast maturing sector, especially within the realms of supporting the acceleration of education and learning. It is not just about the headline capturing entertainment and immersive experiences, as with many emerging technologies, they often scale by delivering practical answers to tricky problems, at an affordable price. EdTech is profound, and delivers extra-ordinary returns to investors and benefits to customers, given the impact of shortening learning cycles, allow people to be trained much in some cases 80% faster is a game changer where skills complexity or shortages apply. With the added ‘augmentation’ part opens wider options for enhanced assistance, through collaborative workings and assigned experiences. 

AI

Artifical Intelligence is very much mis-understood, frequently confused with Deep Knowledge Learning and Machine Learning algorithms supported by relatively complex mathematics. The issue is ML is essentially a human drive activity, manifesting as algorithms that clean, sort, and look for patterns in mostly structured data, and more recently unstructured data as computer processing power improves. 

Whilst these contain inevitable bias many people wrongly interpret or mis-read machine learning as AI. Having said that true AI is indeed hard to spot, given the real definition of AI is when the software adjusts itself based on inputs learned, to refine or expand on being able to achieve the all important ‘Objective’. Although narrow in focus AI it is breaking out and the arrival of Quantum Computing is likely to let the ‘genie out of the lamp’ without having to rub it very hard. 

Edge Computing

A favourite of mine and much misunderstood. Computing at the edge creates part of new opportunities to deliver a smarter autonomous world, or smart sensors and self driving cars. Different to cloud computing, which for me still means a data-centre somewhere, we are exposed to open networks and external environments.

What I find astounding is the belief this new worlds of sensors, autonomous devices, self driving things, robotics there remains a lack of fundamental understanding. As data flows explode there is a need to processing the data into information locally, immediately and without frictional latency of a network for example. One has to get the power where it is needed - at the Edge. 

Smart Cities cannot be truly delivered without it, although the overhead of excessive exponential power needs, security limitations needed to pair different devices powered by different silicon, and the important validation of the underlying the data that is exchanged, all has to be solved before we can prevent cities from being zombied, hacked and destroyed.

Other cool tech

There is so much to choose from and get involved with - BioTech, EdTech, NanoTech, AgriTech, FinTech, Healthcare that have bi-products linking to solutions for Water, Food Provenance, Anti Counterfeit (drugs), and eliminating the general use of plastics, chemicals and things that hurt humans.

Many projects are emerging that propose Alternate Fuels, Energy Saving, alternate Healing and Drug use, new sustainable products like Hemp and we of course have the new agendas of the people to deal with. It is no longer a case of build it and they will come. 

The Rise of Global Movements 

It cannot come as much of a surprise really the millennials and the XYZ generation have largely turned their back on two party politics, that makes no sense to them. They don’t like banks, nor do they consume the products and services. They know they need the bank of mum and dad to stand any chance of getting a house, paying off their student loans, let alone saving for their future. Not only have they embraced a gig economy, not wishing to work inside on an organisational treadmill, they turn instead to experiences and lifestyle choice. They get behind the things that matter - Climate Action and every 1 in 3 of them are Vegetarians, Vegans and the care and support Animal Rights. 

Most Activity 2019

The most active sectors we experienced in 2019 remain Fintech, Media & Entertainment, Life Sciences & Healthcare, Mobility and Transportation, Supply Chain, Security and Identity, Alternate Fuels, Predictive Retail and especially propositions that can engage millions of users quickly and easily. 

Trending in 2020

I am not one for predictions however many people ask me what will be the ‘hot topics’ families will invest in? So here is my ten cents worth.

From where I stand and the hundreds of conversations I have had with families, heads of state, and people that matter. There are significant trend lines that suggest we will see the following in 2020.

I have grouped these into three groups: Passion projects, National Interests and Game Changers.

Passion projects will get attention: 

These are the projects that families personally buy into. Whether helping with global issues and solving humankind’s biggest challenges. Curing deceases, immunology and improving longevity are big focus areas. There is an increasing water shortage (and food) in parts of the world, but how to do this quickly and effectively is tricky. It is worth remembering for example Ammonia used in fertiliser produces 2% of global greenhouse gases? 

People displacement is increasing and they seek somewhere to live, and new trends indicate 60% of the worlds population are moving into urban areas, that generate the most of the worlds pollution and waste. Driving demand for zero carbon foot print building materials, new products and the re-cycling of rubbish and waste are top agenda items across key regions. 

National Interests always come first:

Many families are embedded in a country at geo-political levels. They care, have influence and want to be more involved, especially as the political systems of the west drives a short term horizon. 

The big themes remain National Security and securing and identifying assets, personal security and threats. However for me the big one is how to identify the truth, given we live in a world of Deep Fake and every day we are Cyber-bombed. It is a human quality to want to trust, that has been taken from us by destructive social media. 

National Identity, removing counterfeit currency, removing fake drugs that kill people, finding the rogue people and groups that want the world turned upside down. A delicate balance to avoid totally crushing personal liberties and privacy, which is unfortunately, the current direction of travel.

Game Changers.

We have entered the 4th Wealth Creation Revolution. First came Steam empowering an industrial revolution, then Electricity a manufacturing revolution, then Transistors and productivity and information revolution…but what comes next is entirely different in both potential and risk.

Quantum computing is massively scaling parallel computing power. It is such a step up as we realise the way we think the world works is not the way it does. We have the capability to understand life’s building blocks and compute for the first time the chemical and biological compounds, the massive calculations required to take the next steps in science, engineering and technology. We will soon have the capability to solves humankind greatest challenges - finding out what causes Alzheimers (thought to be flat proteins), to cure cancer and other pernicious deceases, extend life 30 years, create new living ‘shape shifting’ materials, and solve how to feed 10 billion people without destroying the planet and losing half of all wildlife and more important insects to extinction level events, we cannot recover from. 

Quantum is a pervasive and dangerous technology when mixed with AI will not only push the boundaries of physics, biology and science, will also render all forms of protection using encryption useless. In the wrong hands weaponised in a way that manipulates human behaviours more than tech does today. 

Projects that harness this new power for good, to protect what we have, to secure what we have and make it Quantum Safe. How do we regulate and get a handle on managing AI? 

It is important to remind ourselves of the ‘Hippocratic oath’ - that we should not just ask Can We? We should be asking Should We!

2020

As we enter a new decade there are many things to I personally look forward to, as we prepare our business plans to meet the needs of a shape shifting market opportunity. There is no doubt there is lots of private capital available, and the opportunity to engage with private wealth remains a focal point for many. We are just like the founders we help, constantly engaging with investors (families) to raise money for our projects and new ventures, and helping our clients shape their propositions to attract interest. 

It remains tough out there, especially for entrepreneurs that are often very close to their projects and find it difficult to articulate and show their value to families. A tough audience at the best of times. 

Access to families is both expensive, time consuming and difficult, and you need to go to where they hang out… Families prefer to remain out of the public eye, they don’t easily trust and are surrounded by layers of people all confessing to have a path to the ‘goose’… The reality is few do have access.

As we look forward to the New Year do let us know how we may help your project get attention in 2020. 

Wishing you a Merry Christmas and prosperous New Year.

Nick Ayton