2021 had its work cut out for it.
After a period of the most intense uncertainty many of us have ever experienced, we started the year with a cautious optimism. Vaccines and new therapeutics were on the horizon, job creation numbers were up, Q1 corporate earnings were “roaring past expectations” leading to a hope that stability and a return to “normal” might be around the corner.
The venture industry put more dollars to work in the first half of this year than it ever has before. And we’re on track to handily beat that new money invested metric in the second half. Our industry is minting unicorns by the dozens with now more than 1,000 companies globally valued at more than $1B. As the world seems awash in liquidity looking for a home, firms are raising bigger funds and are investing more, earlier and at higher valuations than, for those of us who have been around for a while, have seen – even in the hubris of the dotcom days.
Alongside the optimism we were feeling at the start of the year was also a sense that the other shoe could drop at any moment. Covid variants, supply chain challenges and talent shortages have meant the global recovery is being experienced in fits and starts. And in venture, there isn’t an investor among us who’s not wondering if this pace of investment is sustainable and thinking hard about what happens to even the best companies when – not if – this bubble deflates.
Our team has invested more money this year than we ever have before. If we’re being honest, that fact keeps us up some nights.
At DTC, we’ve been no exception to the trend. Our team has invested more money this year than we ever have before*. If we’re being honest, that fact keeps us up some nights. It’s not just about making the economics of today’s valuations work but also, thinking through what we can be doing right now to help our companies prepare for whatever comes next. Be it a crowded marketplace of well-funded competitors, a funding slowdown, or another unprecedented global challenge.
Despite all that’s been endured in the past 20 months and the market unknowns, we are steadfast in our optimism about enterprise technologies and their ability to drive human progress. The companies in our portfolio along with the many great teams we’ve yet to invest in are building real businesses by solving hard problems through innovation in the cloud and at the edge. They’re rethinking the tools we use to store, access, understand, secure, and use data and how applications and services can be built and deployed more effectively.
We’re much more comfortable with the long game of innovation and investment. It takes time to build businesses of consequence and future fundamental technologies.
Another positive change is that as an industry, we are much more comfortable with the long game of innovation and investment. It takes time to build businesses of consequence and future fundamental technologies. It’s been fascinating to watch as teams and technologies continue to grow in influence and value well beyond their IPO or acquisition. Enterprise software companies that have IPOed in the last several years have seen their revenues and valuations increase by orders of magnitude despite new entrants and increasing competition. And in areas like cybersecurity, some very cool technologies born of the venture-backed world have been acquired to modernize the product platforms of the incumbents.
Innovation is happening everywhere.
And one more point for the optimistic column: we’ve embraced that innovation is happening everywhere. In the US, more than 2/3 of venture dollars were used to back companies outside of Silicon Valley, investments in European startups have more than doubled in just the last year from one record high to the next, and the Israeli innovation ecosystem has had its biggest year ever in terms of both investment and realizations. We are a truly global innovation scene.
We have the tremendous opportunity to create real technologies to drive human progress.
Our industry may have started at the intersection of government research and a niche market for hobbyists, but we’re now realizing that we have a broad — and tremendous opportunity here. We can’t predict what 2022 has in store for us on many fronts but one thing we truly believe: There’s never been a better time to invest in innovation and the people who build it.
Scott Darling and the DTC Team
* This year we welcomed companies from across the US, Europe and Israel including Katana Graph, Augtera Networks, Tag n Trac, Bodo.ai, Calamu, Lightspin, Treeverse, Swish.ai and a number of still-stealth companies, to the DTC portfolio. We also deepened our commitment to more than 30 current portfolio companies.