It is no secret that fundamental shifts are taking place in technology. Cloud computing, big data analytics and ubiquitous mobile connectivity are all at the top of the transformative list, along with peer-to-peer ecommerce, a la Uber and Airbnb.
What is less discussed is the extent to which they could generate profits for private company investors.
Here is one estimate. In the next 10 years, $500 billion of returns could come straight into the venture industry as these once-in-a-decade innovations create opportunities for new companies, estimated Venky Ganesan, a managing director at Menlo Ventures.
“That is going to put venture back,” Ganesan said confidently this week at the Venture Alpha West conference in Half Moon Bay, Calif., produced by Thomson Reuters (publisher of VCJ).
Shazam! He could be right.
At first blush, $500 billion seems like an extraordinary number. But at closer examination it is not out of the question if the rising tide of technology continues.
Consider that the industry has raised about $80 billion in new capital over the past five years. Should fundraising continue at a similar $16 billion annual pace, it would bring in about $160 billion in new capital over the 10-year period of 2009 to 2018.
If the money generates roughly a 3x return, then cash to the business could come close to the $500 billion.
Ganesan pointed out during his conference keynote address that distributions from the M&A and IPO events of the past three years are already well ahead of the fundraising totals.
But his real point is that growth is accelerating in technology as clever new businesses rock the foundations of established industries. Think not just of Uber or Airbnb, but of Workday, Splunk and LinkedIn.
“Suddenly technology, which used to be horizontal, is becoming vertical,” and creating opportunities in industry sectors from healthcare to publishing, he said.
Photo of Venky Ganesan speaking at Venture Alpha West by Oscar Urizar, Red Eye Collection.