What we believe at Ariadne Capital in our 15th Year - Digital Enablers not Digital Disrupters

Our Investment Philosophy

Introduction—what we believe

Scarcely a day goes by without news of profound transformation in some part of the economy.  Industries that thought themselves immune from the convulsions brought about by technological opportunity are, one by one, being challenged and face major reorganisation: from beer to banking; from the taxi that meets you at the airport to the room you spend the night in.

At Ariadne Capital, we do not believe that these phenomena should be read as isolated examples of ‘disruption’.  We believe they are part of a cyclical process of change that is affecting the very foundations of the way value is created.  Nor do we believe that the so-called Old Economy of institutions and corporations will simply be swept aside by the tide of innovation: there is too much cash, too much equity and too much real value locked away in the giants of our economy for there to be a simple changing of the guard.  The old players will adapt: the question is not whether that will happen but how soon and who will help to bring it about.  We believe that instead of disruptors, the real winners in the New Economy will be the digital enablers that allow the old guard and the new to work together in networks that generate value in exponential ways.

These networks will behave in ways that are radically different from what we have seen before in many regards.  But two in particular will have huge implications.  The first is that the standard models for large organisations to deal with entrepreneurs will need to be rethought.  At present, a corporation can acquire a venture, procure its services in a traditional way or copy its activities.  The emphasis is on control.  But entrepreneurs almost by definition are people that don’t want to be controlled.  Entrepreneurs are left almost no option but to disrupt.  This will need to change: when the vast power of corporations is harnessed alongside the creative energy of entrepreneurial thinking the network effect will be exponential.

The second great shift will be in the empowerment of the individual.  At present, chains of value consider consumers to be far downstream of value creation.  And yet it is their (our) data and purchasing power that is fuelling the economy.  Today’s platforms are getting rich on the back of consumer insights—effectively farming my data to create their revenues.  I get little back in exchange.  When consumers start to realise their power and potential, they will demand a share in the economic benefits of the new world.  And whoever is able to help them do so and to become entrepreneurs of their own data will score a significant advantage in the new economy. 

What do these insights mean for Ariadne Capital?

If you follow the logic above, a radical strategy starts to emerge, comprising several different strands:

1. Firstly, the focus on investment turns to digital enablers. A digital enabler is a core component in the infrastructure of the new economy that will make it possible to reinvent value.  These may include:

• Network tools that allow for rapid collaboration, trading and value sharing across enterprises
• Tools that allow users to monetize their own data
• Mechanisms that allow for things that have previously been accessible only via people or products (capabilities, business infrastructure, physical assets) to become services
• Services that apply to whole industries, such as tools that could apply to the whole banking industry or media or automotive
• Mechanisms that allow for new ways of doing fundamental things in line with the new demands of the networked economy, such as accounting
• Etc

At Ariadne Capital, we place bets on what the major enablers and platforms will be.

2. Secondly, we believe it is essential to include the corporations and institutions of the old economy in our thinking. It is these organisations that have access to customers, to value chains, to brands and to cash.  Involving them in the new networks is critical.  But today, there are barriers to their being able to do so fast.  Ariadne Capital’s creation of EntrepreneurCountry is essential to tackling those barriers by:

• Targeting the institutions and corporations that we believe could play a pivotal role in the new economy
• Providing advisory services that demonstrate rapid returns and value creation to build trust
• Tackling the barriers of cultural and organisational design that get in the way of corporate engagement through comprehensive acceleration programmes and cultural change
• Setting up not just ‘hub-and-spoke’ models of exchange between corporates and new economy players, but networks of sustainable value

3. Thirdly, we believe that the networks are valuable only if there is a flow of new ideas, businesses and start-ups constantly available to populate the platform, and this is achieved by our tireless dedication to leading the discussion:

• Insisting on thought leadership in the media and within existing established events
• Running the best events on the new economy in the industry
• Occasional investment in outstanding companies that could be the ‘offerings’ of the new networked economy, especially those that leverage consumer data intelligently and have appeal to multiple industries

What will this look like in practice?

EntrepreneurCountry will ultimately be a space in which value is generated through the relationships between major existing corporations and new players in the digital economy.  Ariadne Capital will seek to ‘own’ that space by:

• Investing the major digital enablers that make it possible to operate in this new way
• Having relationships with the key corporations that will embrace the new world and developing the methodologies that will help them to overcome barriers to the new ways of working
• Investing in tools that empower individuals, starting with our own community of over 200,000 signed-up citizens, to be active and not just passive players in the new ways of creating value
• Having access to the very best digital offerings and ensuring the country proffers outstanding access to commercial opportunities for all its citizens—individuals, corporations, institutions
• Providing a test-bed for new ideas in which any organisation can set up a trial for agile and iterative creation before launching concepts into the wider economy
• All of the above will eventually be enabled digitally on a trading and collaboration platform, but the activities have all been carried out in the offline world already

Ariadne Capital will monetize these activities through:

• Increase in value in investments in the digital enablers that grow via the platform
• Fees for corporate transformation
• Fees for trials
• Share of revenues potentially for ideas trialled and tested in the platform

A key risk: does this vision depend on the continued rise of the digital disruptors and so-called ‘Unicorns’?

The short answer is no.  The current model may well run out of steam or collapse: there is only so much disruption the economy can take and only so many Ubers and Airbnb-type solutions.  On the other hand, whatever happens to the macro-economy, people cannot unlearn the lessons of digital tools that make it possible to imagine a world unencumbered by expensive IT investments or Supply Chains for major corporations.  In many ways, a downturn may actually drive more acceleration towards new ways of doing things.  This model is about real companies that generate real value doing practical things to transform their model—in precisely the way that the cyclical view of economic trends would predict.